[1] G.R. No.

164182             February 26, 2008

POWER HOMES UNLIMITED CORPORATION, petitioner,

vs. SECURITIES AND EXCHANGE COMMISSION AND NOEL
MANERO, respondents.

Due Process; A formal trial or hearing is not necessary to comply with the
requirements of due process—its essence is simply the opportunity to explain one’s
position.—We hold that petitioner was not denied due process. The records reveal that
public respondent SEC properly examined petitioner’s business operations when it (1)
called into conference three of petitioner’s incorporators, (2) requested information from
the incorporators regarding the nature of petitioner’s business operations, (3) asked
them to submit documents pertinent thereto, and (4) visited petitioner’s business
premises and gathered information thereat. All these were done before the CDO was
issued by the public respondent SEC. Trite to state, a formal trial or hearing is not
necessary to comply with the requirements of due process. Its essence is simply the
opportunity to explain one’s position. Public respondent SEC abundantly allowed
petitioner to prove its side.

Securities Regulation Code (R.A. No. 8799); Securities; Investment Contracts;

Words and Phrases; An investment contract is defined as a “contract, transaction or
scheme (collectively ‘contract’) whereby a person invests his money in a common
enterprise and is led to expect profits primarily from the efforts of others.”—An
investment contract is defined in the Amended Implementing Rules and Regulations of
R.A. No. 8799 as a “contract, transaction or scheme (collectively ‘contract’) whereby a
person invests his money in a common enterprise and is led to expect
profits primarily from the efforts of others.”

Same; Same; Same; Same; “Blue Sky” Laws; Howey Test; Our definition of an
investment contract traces its roots from the 1946 United States (US) case of SEC v.
W.J. Howey Co, 328 U.S. 293 (1946); The Howey Test requires a transaction, contract,
or scheme whereby a person (1) makes an investment of money, (2) in a common
enterprise, (3) with the expectation of profits, (4) to be derived solely from the efforts of
others.—It behooves us to trace the history of the concept of an investment contract
under R.A. No. 8799. Our definition of an investment contract traces its roots from the
1946 United States (US) case of SEC v. W.J. Howey Co. In this case, the US Supreme
Court was confronted with the issue of whether the Howey transaction constituted an
“investment contract” under the Securities Act’s definition of “security.” The US
Supreme Court, recognizing that the term “investment contract” was not defined by the
Act or illumined by any legislative report, held that “Congress was using a term whose
meaning had been crystallized” under the state’s “blue sky” laws in existence prior to
the adoption of the Securities Act. Thus, it ruled that the use of the catch-all term
“investment contract” indicated a congressional intent to cover a wide range of
investment transactions. It established a test to determine whether a transaction falls
within the scope of an “investment contract.” Known as the Howey Test, it requires a
transaction, contract, or scheme whereby a person (1) makes an investment of money,
(2) in a common enterprise, (3) with the expectation of profits, (4) to be
derived solely from the efforts of others. Although the proponents must establish all four
elements, the US Supreme Court stressed that the Howey Test “embodies a flexible
rather than a static principle, one that is capable of adaptation to meet the countless
and variable schemes devised by those who seek the use of the money of others on the
promise of profits.” Needless to state, any investment contract covered by the Howey
Test must be registered under the Securities Act, regardless of whether its issuer was
engaged in fraudulent practices.

Same; Same; Same; Same; Same; R.A. No. 8799 appears to follow flexible concept
enunciated in SEC v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, Fed.Sec. L.
Rep. P. 93 (1973) for it defines an investment contract as a contract, transaction or
scheme (collectively “contract”) whereby a person invests his money in a common
enterprise and is led to expect profits not solely but primarily from the efforts of others;
To be a security subject to regulation by the SEC, an investment contract in our
jurisdiction must be proved to be: (1) an investment of money, (2) in a common
enterprise, (3) with expectation of profits, (4) primarily from efforts of others.—After
Howey came the 1973 US case of SEC v. Glenn W. Turner Enterprises, Inc., et al. In
this case, the 9th Circuit of the US Court of Appeals ruled that the element that profits
must come “solely” from the efforts of others should not be given a strict interpretation. It
held that a literal reading of the requirement “solely” would lead to unrealistic results. It
reasoned out that its flexible reading is in accord with the statutory policy of affording
broad protection to the public. Our R.A. No. 8799 appears to follow this flexible concept
for it defines an investment contract as a contract, transaction or scheme (collectively
“contract”) whereby a person invests his money in a common enterprise and is led to
expect profits not solely but primarily from the efforts of others. Thus, to be a
security subject to regulation by the SEC, an investment contract in our jurisdiction must
be proved to be: (1) an investment of money, (2) in a common enterprise, (3) with
expectation of profits, (4) primarily from efforts of others.

Same; Same; Same; An investment contract that is a security under R.A. No. 8799
must be registered with the Securities and Exchange Commission before its sale or
offer for sale or distribution to the public; The strict regulation of securities is founded on
the premise that the capital markets depend on the investing public’s level of
confidence in the system.—We therefore rule that the business operation or the scheme
of petitioner constitutes an investment contract that is a security under R.A. No. 8799.
Thus, it must be registered with public respondent SEC before its sale or offer for sale
or distribution to the public. As petitioner failed to register the same, its offering to the
public was rightfully enjoined by public respondent SEC. The CDO was proper even
without a finding of fraud. As an investment contract that is security under R.A. No.
8799, it must be registered with public respondent SEC, otherwise the SEC cannot
protect the investing public from fraudulent securities. The strict regulation of securities
is founded on the premise that the capital markets depend on the investing public’s level
of confidence in the system.
[2] G.R. No. 164197               January 25, 2012

SECURITIES AND EXCHANGE COMMISSION, Petitioner,

vs. PROSPERITY.COM, INC., Respondent.

Mercantile Law; Securities Regulation Code; Investment Contracts; An investment

contract is a contract, transaction, or scheme where a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts of others.—The
Securities Regulation Code treats investment contracts as “securities” that have to be
registered with the SEC before they can be distributed and sold. An investment contract
is a contract, transaction, or scheme where a person invests his money in a common
enterprise and is led to expect profits primarily from the efforts of others.

Same; Same; Same; Conditions for Investment Contracts to Arise.—The United

States Supreme Court held in Securities and Exchange Commission v. W.J. Howey
Co., that, for an investment contract to exist, the following elements, referred to as
the Howey test must concur: (1) a contract, transaction, or scheme; (2) an investment of
money; (3) investment is made in a common enterprise; (4) expectation of profits; and
(5) profits arising primarily from the efforts of others. Thus, to sustain the SEC position
in this case, PCI’s scheme or contract with its buyers must have all these elements.

[3] G.R. No. 166786             May 3, 2006

MICHEL J. LHUILLER Pawnshop, Inc. Petitioner,

vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

Taxation; Documentary Stamp Tax; A Documentary Stamp Tax (DST) is an excise

tax on the exercise of a right or privilege to transfer obligations, rights or properties
incident thereto.—It is clear from the foregoing provisions that the subject of a DST is
not limited to the document embodying the enumerated transactions. A DST is an
excise tax on the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto. In Philippine Home Assurance Corporation v. Court of
Appeals, 301 SCRA 443, 447 (1999), it was held that: In general, documentary stamp
taxes are levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of
specific instruments. Examples of such privileges, the exercise of which, as effected
through the issuance of particular documents, are subject to the payment of
documentary stamp taxes are leases of lands, mortgages, pledges and trusts, and
conveyances of real property.

Same; Same; Pledge; Pledge is among the privileges the exercise of which is

subject to Documentary Stamp Tax (DST).—Pledge is among the privileges, the
exercise of which is subject to DST. A pledge may be defined as an accessory, real and
unilateral contract by virtue of which the debtor or a third person delivers to the creditor
or to a third person movable property as security for the performance of the principal
obligation, upon the fulfillment of which the thing pledged, with all its accessions and
accessories, shall be returned to the debtor or to the third person. This is essentially the
business of pawnshops which are defined under Section 3 of Presidential Decree No.
114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money
on personal property delivered as security for loans.

Same; Same; Same; For purposes of taxation, the same pawn ticket is proof of an

exercise of a taxable privilege of concluding a contract of pledge.—True, the law does
not consider said ticket as an evidence of security or indebtedness. However, for
purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege
of concluding a contract of pledge. At any rate, it is not said ticket that creates the
pawnshop’s obligation to pay DST but the exercise of the privilege to enter into a
contract of pledge. There is therefore no basis in petitioner’s assertion that a DST is
literally a tax on a document and that no tax may be imposed on a pawn ticket.

Same; Same; Same; Section 195 unqualifiedly subjects all pledges to

Documentary Stamp Tax (DST).—The settled rule is that tax laws must be construed in
favor of the taxpayer and strictly against the government; and that a tax cannot be
imposed without clear and express words for that purpose. Taking our bearing from the
foregoing doctrines, we scrutinized Section 195 of the NIRC, but there is no way that
said provision may be interpreted in favor of petitioner. Section 195 unqualifiedly
subjects all pledges to DST. It states that “[o]n every x x x pledge x x x there shall be
collected a documentary stamp tax x x x.” It is clear, categorical, and needs no further
interpretation or construction. The explicit tenor thereof requires hardly anything than a
simple application.

Same; Same; Same; One who claims an exemption from tax payments rests the

burden of justifying the exemption by words too plain to be mistaken and too categorical
to be misinterpreted.—The onus of proving that pawnshops are not subject to DST is
thus shifted to petitioner. In establishing tax exemptions, it should be borne in mind that
taxation is the rule, exemption is the exception. Accordingly, statutes granting tax
exemptions must be construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. One who claims an exemption from tax payments rests the
burden of justifying the exemption by words too plain to be mistaken and too categorical
to be misinterpreted.

[4] G.R. No. 154131             July 20, 2006

SECURITIES AND EXCHANGE COMMISSION, petitioner,
vs. PERFORMANCE FOREIGN EXCHANGE CORPORATION, respondent.

Securities Regulations Code (R.A. No. 8799); There are two essential

requirements that must be complied with by the Securities and Exchange Commission
(SEC) before it may issue a cease and desist order—first, it must conduct proper
investigation or verification, and, second, there must be a finding that the act or
practice, unless restrained, will operate as a fraud on investors or is otherwise likely to
cause grave or irreparable injury or prejudice to the investing public.—The issue for our
resolution is whether petitioner SEC acted with grave abuse of discretion in issuing the
Cease and Desist Order and its subsequent Order making it permanent. Section 64 of
R.A. No. 8799, provides: Sec. 64. Cease and Desist Order.—64.1. The
Commission, after proper investigation or verification, motu proprio, or upon verified
complaint by any aggrieved party, may issue a cease and desist order without the
necessity of a prior hearing if in its judgment the act or practice, unless restrained, will
operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury
or prejudice to the investing public. x x x. (Italics supplied) Under the above provision,
there are two essential requirements that must be complied with by the SEC before it
may issue a cease and desist order: First, it must conduct proper investigation or
verification; and Second, there must be a finding that the act or practice, unless
restrained, will operate as a fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public.

Same; A clarificatory conference undertaken by the SEC regarding a corporation’s

business operations cannot be considered a proper investigation or verification process
to justify the issuance of a Cease and Desist Order.—Here, the first requirement is not
present. Petitioner did not conduct proper investigation or verification before it issued
the challenged orders. The clarificatory conference undertaken by petitioner regarding
respondent’s business operations cannot be considered a proper investigation or
verification process to justify the issuance of the Cease and Desist Order. It was merely
an initial stage of such process, considering that after it issued the said order following
the clarificatory conference, petitioner still sought verification from the BSP on the
nature of respondent’s business activity.

Same; The investigation, to be proper, must be conducted by the SEC before, not

after, issuing the Cease and Desist Order.—Petitioner’s act of referring the matter to the
BSP is an essential part of the investigation and verification process. In fact, such
referral indicates that petitioner concedes to the BSP’s expertise in determining the
nature of respondent’s business. It bears stressing, however, that such investigation
and verification, to be proper, must be conducted by petitioner before, not after, issuing
the Cease and Desist Order in question. This, petitioner utterly failed to do. The
issuance of such order even before it could finish its investigation and verification on
respondent’s business activity obviously contravenes Section 64 of R.A. No. 8799
earlier quoted.

Same; Before a cease and desist order may be issued by SEC, there must be a
showing that the act or practice sought to be restrained will operate as a fraud on
investors or is likely to cause grave, irreparable injury or prejudice to the investing
public implies that the act to be restrained has been determined after conducting the
proper investigation/verification.—Which brings us to the second requirement. Before a
cease and desist order may be issued by the SEC, there must be a showing that the act
or practice sought to be restrained will operate as a fraud on investors or is likely to
cause grave, irreparable injury or prejudice to the investing public. Such requirement
implies that the act to be restrained has been determined after conducting the proper
investigation/verification. In this case, the nature of the act to be restrained can only be
determined after the BSP shall have submitted its findings to petitioner. However, there
is nothing in the questioned Orders that shows how the public is greatly prejudiced or
damaged by respondent’s business operation.

[5] G.R. No. 170770               January 9, 2013

VITALIANO N. AGUIRRES II and FIDEL N. AGUIRRE, Petitioners,

vs. FQB+7, INC., NATHANIEL D. BOCOBO, PRISCILA BOCOBO and ANTONIO DE
VILLA, Respondents.

Corporation Law; Dissolution of Corporations; Section 122 of the Corporation Code

prohibits a dissolved corporation from continuing its business, but allows it to continue
with a limited personality in order to settle and close its affairs, including its complete
liquidation.—Section 122 of the Corporation Code prohibits a dissolved corporation from
continuing its business, but allows it to continue with a limited personality in order to
settle and close its affairs, including its complete liquidation, thus: Sec. 122. Corporate
liquidation.—Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is
terminated in any other manner, shall nevertheless be continued as a body corporate
for three (3) years after the time when it would have been so dissolved, for the purpose
of prosecuting and defending suits by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to distribute its assets, but not for the
purpose of continuing the business for which it was established.

Same; Same; A corporation’s board of directors is not rendered functus officio by its
dissolution. Since Section 122 allows a corporation to continue its existence for a
limited purpose, necessarily there must be a board that will continue acting for and on
behalf of the dissolved corporation for that purpose.—Neither are these issues mooted
by the dissolution of the corporation. A corporation’s board of directors is not
rendered functus officio by its dissolution. Since Section 122 allows a corporation to
continue its existence for a limited purpose, necessarily there must be a board that will
continue acting for and on behalf of the dissolved corporation for that purpose. In fact,
Section 122 authorizes the dissolved corporation’s board of directors to conduct its
liquidation within three years from its dissolution. Jurisprudence has even recognized
the board’s authority to act as trustee for persons in interest beyond the said three-year
period. Thus, the determination of which group is the bona fide or rightful board of the
dissolved corporation will still provide practical relief to the parties involved.

Same; Intra-Corporate Controversies; Regional Trial Courts; Jurisdiction; Republic

Act No. 8799 conferred jurisdiction over intra-corporate controversies on courts of
general jurisdiction or Regional Trial Courts (RTCs), to be designated by the Supreme
Court.—Jurisdiction over the subject matter is conferred by law. R.A. No. 8799
conferred jurisdiction over intra-corporate controversies on courts of general jurisdiction
or RTCs, to be designated by the Supreme Court. Thus, as long as the nature of the
controversy is intra-corporate, the designated RTCs have the authority to exercise
jurisdiction over such cases.

Same; Same; Same; Same; Republic Act No. 8799; So long as the dispute is intra-
corporate, the Regional Trial Court, acting as a special commercial court, has
jurisdiction over it.—To be considered as an intra-corporate dispute, the case: (a) must
arise out of intra-corporate or partnership relations, and (b) the nature of the question
subject of the controversy must be such that it is intrinsically connected with the
regulation of the corporation or the enforcement of the parties’ rights and obligations
under the Corporation Code and the internal regulatory rules of the corporation. So long
as these two criteria are satisfied, the dispute is intra-corporate and the RTC, acting as
a special commercial court, has jurisdiction over it.

[6] G.R. No. 171815               August 7, 2007

CEMCO HOLDINGS, INC., Petitioner,

vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES,
INC., Respondent.

Corporation Law; Securities Regulation Code (R.A. No. 8799); Mandatory Offer

Rule; Securities and Exchange Commission (SEC); Jurisdictions; Administrative
Law; Rule 19(13) of the Amended Implementing Rules and Regulations of the
Securities Regulation Code emanates from the Securities and Exchange Commission’s
(SEC’s) power and authority to regulate, investigate or supervise the activities of
persons to ensure compliance with the Securities Regulation Code, more specifically
the provision on mandatory tender offer under Section 19 thereof.—In taking
cognizance of respondent’s complaint against petitioner and eventually rendering a
judgment which ordered the latter to make a tender offer, the SEC was acting pursuant
to Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities
Regulation Code, to wit: 13. Violation. If there shall be violation of this Rule by pursuing
a purchase of equity shares of a public company at threshold amounts without the
required tender offer, the Commission, upon complaint, may nullify the said acquisition
and direct the holding of a tender offer. This shall be without prejudice to the imposition
of other sanctions under the Code. The foregoing rule emanates from the SEC’s power
and authority to regulate, investigate or supervise the activities of persons to ensure
compliance with the Securities Regulation Code, more specifically the provision on
mandatory tender offer under Section 19 thereof.

Same; Same; Same; Same; Same; Same; As a regulatory agency, Securities and

Exchange Commission (SEC) has the incidental power to conduct hearings and render
decisions fixing the rights and obligations of the parties—to deprive the SEC of this
power would render the agency inutile, because it would become powerless to regulate
and implement the law.—Another provision of the statute, which provides the basis of
Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities
Regulation Code, is Section 5.1(n), viz.: [T]he Commission shall have, among others,
the following powers and functions: x x x x (n) Exercise such other powers as may be
provided by law as well as those which may be implied from, or which are necessary or
incidental to the carrying out of, the express powers granted the Commission to achieve
the objectives and purposes of these laws. The foregoing provision bestows upon the
SEC the general adjudicative power which is implied from the express powers of the
Commission or which is incidental to, or reasonably necessary to carry out, the
performance of the administrative duties entrusted to it. As a regulatory agency, it has
the incidental power to conduct hearings and render decisions fixing the rights and
obligations of the parties. In fact, to deprive the SEC of this power would render the
agency inutile, because it would become powerless to regulate and implement the law.

Same; Same; Same; Same; Same; Same; The power conferred upon the

Securities and Exchange Commission (SEC) to promulgate rules and regulations is a
legislative recognition of the complexity and the constantly-fluctuating nature of the
market and the impossibility of foreseeing all the possible contingencies that cannot be
addressed in advance.—The power conferred upon the SEC to promulgate rules and
regulations is a legislative recognition of the complexity and the constantly-fluctuating
nature of the market and the impossibility of foreseeing all the possible contingencies
that cannot be addressed in advance. As enunciated in Victorias Milling Co., Inc. v.
Social Security Commission, 4 SCRA 627: Rules and regulations when promulgated in
pursuance of the procedure or authority conferred upon the administrative agency by
law, partake of the nature of a statute, and compliance therewith may be enforced by a
penal sanction provided in the law. This is so because statutes are usually couched in
general terms, after expressing the policy, purposes, objectives, remedies and
sanctions intended by the legislature. The details and the manner of carrying out the law
are often times left to the administrative agency entrusted with its enforcement. In this
sense, it has been said that rules and regulations are the product of a delegated power
to create new or additional legal provisions that have the effect of law.

Same; Same; Same; Same; Same; Same; Estoppel; While the lack of jurisdiction

of a court may be raised at any stage of an action, nevertheless, the party raising such
question may be estopped if he has actively taken part in the very proceedings which
he questions and he only objects to the court’s jurisdiction because the judgment or the
order subsequently rendered is adverse to him.—Petitioner did not question the
jurisdiction of the SEC when it rendered an opinion favorable to it, such as the 27 July
2004 Resolution, where the SEC opined that the Cemco transaction was not covered by
the mandatory tender offer rule. It was only when the case was before the Court of
Appeals and after the SEC rendered an unfavorable judgment against it that petitioner
challenged the SEC’s competence. As articulated in Ceroferr Realty Corporation v.
Court of Appeals, 376 SCRA 144 (2002): While the lack of jurisdiction of a court may be
raised at any stage of an action, nevertheless, the party raising such question may be
estopped if he has actively taken part in the very proceedings which he questions and
he only objects to the court’s jurisdiction because the judgment or the order
subsequently rendered is adverse to him.

Same; Same; Same; Same; Words and Phrases; A tender offer is an offer by the

acquiring person to stockholders of a public company for them to tender their shares
therein on the terms specified in the offer; A public company is defined as a corporation
which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00
and with 200 or more stockholders, at least 200 of them holding not less than 100
shares of such company.—Tender offer is a publicly announced intention by a person
acting alone or in concert with other persons to acquire equity securities of a public
company. A public company is defined as a corporation which is listed on an exchange,
or a corporation with assets exceeding P50,000,000.00 and with 200 or more
stockholders, at least 200 of them holding not less than 100 shares of such company.
Stated differently, a tender offer is an offer by the acquiring person to stockholders of a
public company for them to tender their shares therein on the terms specified in the
offer. Tender offer is in place to protect minority shareholders against any scheme that
dilutes the share value of their investments. It gives the minority shareholders the
chance to exit the company under reasonable terms, giving them the opportunity to sell
their shares at the same price as those of the majority shareholders.

Same; Same; Same; Same; Administrative Law; Statutory Construction; The

coverage of the mandatory tender offer rule covers not only direct acquisition but also
indirect acquisition or “any type of acquisition”; The rule in this jurisdiction is that the
construction given to a statute by an administrative agency charged with the
interpretation and application of that statute is entitled to great weight by the courts,
unless such construction is clearly shown to be in sharp contrast with the governing law
or statute.—The SEC and the Court of Appeals ruled that the indirect acquisition by
petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC shares
is covered by the mandatory tender offer rule. This interpretation given by the SEC and
the Court of Appeals must be sustained. The rule in this jurisdiction is that the
construction given to a statute by an administrative agency charged with the
interpretation and application of that statute is entitled to great weight by the courts,
unless such construction is clearly shown to be in sharp contrast with the governing law
or statute. The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the establishment of diverse
administrative agencies for addressing and satisfying those needs; it also relates to
accumulation of experience and growth of specialized capabilities by the administrative
agency charged with implementing a particular statute. The SEC and the Court of
Appeals accurately pointed out that the coverage of the mandatory tender offer rule
covers not only direct acquisition but also indirect acquisition or “any type of
acquisition.” This is clear from the discussions of the Bicameral Conference Committee
on the Securities Act of 2000, on 17 July 2000.

Same; Same; Same; Same; Same; Same; The legislative intent of Section 19 of

the Code is to regulate activities relating to acquisition of control of the listed company
and for the purpose of protecting the minority stockholders of a listed corporation.—The
legislative intent of Section 19 of the Code is to regulate activities relating to acquisition
of control of the listed company and for the purpose of protecting the minority
stockholders of a listed corporation. Whatever may be the method by which control of a
public company is obtained, either through the direct purchase of its stocks or through
an indirect means, mandatory tender offer applies.

Same; Same; Same; Same; Same; An advisory opinion of an agency may be

stricken down if it deviates from the provision of the statute.—The action of the SEC on
the PSE request for opinion on the Cemco transaction cannot be construed as passing
merits or giving approval to the questioned transaction. As aptly pointed out by the
respondent, the letter dated 27 July 2004 of the SEC was nothing but an approval of the
draft letter prepared by Director Callanga. There was no public hearing where interested
parties could have been heard. Hence, it was not issued upon a definite and concrete
controversy affecting the legal relations of parties thereby making it a judgment
conclusive on all the parties. Said letter was merely advisory. Jurisprudence has it that
an advisory opinion of an agency may be stricken down if it deviates from the provision
of the statute. Since the letter dated 27 July 2004 runs counter to the Securities
Regulation Code, the same may be disregarded as what the SEC has done in its
decision dated 14 February 2005.

Supreme Court; Judgments; A new rule laid down in a case applies immediately to

that case.—Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling,
the same cannot be utilized to determine the rights of the parties. What is to be applied
in the present case is the subsequent ruling of the SEC dated 14 February 2005
abandoning the opinion embodied in the letter dated 27 July 2004. In Serrano v.
National Labor Relations Commission, 331 SCRA 331 (2000), was raised similar to the
case under consideration. Private respondent therein argued that the new doctrine
pronounced by the Court should only be applied prospectively. Said postulation was
ignored by the Court when it ruled: While a judicial interpretation becomes a part of the
law as of the date that law was originally passed, this is subject to the qualification that
when a doctrine of this Court is overruled and a different view is adopted, and more so
when there is a reversal thereof, the new doctrine should be applied prospectively and
should not apply to parties who relied on the old doctrine and acted in good faith. To
hold otherwise would be to deprive the law of its quality of fairness and justice then, if
there is no recognition of what had transpired prior to such adjudication. It is apparent
that private respondent misconceived the import of the ruling. The decision in Columbia
Pictures does not mean that if a new rule is laid down in a case, it should not be applied
in that case but that said rule should apply prospectively to cases arising afterwards.
Private respondent’s view of the principle of prospective application of new judicial
doctrines would turn the judicial function into a mere academic exercise with the result
that the doctrine laid down would be no more than a dictum and would deprive the
holding in the case of any force.

[7] G.R. No. 165272               September 13, 2007

SERGIO R. OSMEÑA III, JUAN M. FLAVIER, RODOLFO G. BIAZON, ALFREDO S.

LIM, JAMBY A.S. MADRIGAL, LUIS F. SISON, AND PATRICIA C.
SISON, Petitioners, vs.
SOCIAL SECURITY SYSTEM OF THE PHILIPPINES, SOCIAL SECURITY
COMMISSION, CORAZON S. DELA PAZ, THELMO Y. CUNANAN, PATRICIA A.
STO. TOMAS, FE TIBAYAN-PANLILEO, DONALD DEE, SERGIO R. ORTIZ-LUIS,
JR., EFREN P. ARANZAMENDEZ, MARIANITA O. MENDOZA, and RAMON J.
JABAR, in their capacities as Members of the Social Security Commission, AND
BDO CAPITAL & INVESTMENT CORPORATION, Respondents.

Corporation Law; Tender Offers; Words and Phrases; A “tender offer” is a publicly

announced intention by a person acting alone or in concert with other persons to
acquire equity securities of a public company, i.e., one listed on an exchange, among
others—it is also defined as “an offer by the acquiring person to stockholders of a public
company for them to tender their shares therein on the terms specified in the offer.”—
For perspective, a “tender offer” is a publicly announced intention by a person acting
alone or in concert with other persons to acquire equity securities of a public
company, i.e., one listed on an exchange, among others. The term is also defined as
“an offer by the acquiring person to stockholders of a public company for them to tender
their shares therein on the terms specified in the offer.” Tender offer is in place to
protect the interests of minority stockholders of a target company against any scheme
that dilutes the share value of their investments. It affords such minority shareholders
the opportunity to withdraw or exit from the company under reasonable terms, a chance
to sell their shares at the same price as those of the majority stockholders.

Same; Moot and Academic Issues; Courts generally decline jurisdiction over such

case or dismiss it on the ground of mootness—save when, among others, a compelling
constitutional issue raised requires the formulation of controlling principles to guide the
bench, the bar and the public, or when the case is capable of repetition yet evading
judicial review.—A case or issue is considered moot and academic when it ceases to
present a justiciable controversy by virtue of supervening events, so that an adjudication
of the case or a declaration on the issue would be of no practical value or use. In such
instance, there is no actual substantial relief which a petitioner would be entitled to, and
which would be negated by the dismissal of the petition. Courts generally decline
jurisdiction over such case or dismiss it on the ground of mootness—save when, among
others, a compelling constitutional issue raised requires the formulation of controlling
principles to guide the bench, the bar and the public; or when the case is capable of
repetition yet evading judicial review.

Same; Obligations and Contracts; Under the law on obligations and contracts, the

obligation to give a determinate thing is extinguished if the object is lost without the fault
of the debtor.—Under the law on obligations and contracts, the obligation to give a
determinate thing is extinguished if the object is lost without the fault of the debtor. And
per Art. 1192 (2) of the Civil Code, a thing is considered lost when it perishes or
disappears in such a way that it cannot be recovered. In a very real sense, the interplay
of the ensuing factors: a) the BDO-EPCIB merger; and b) the cancellation of subject
Shares and their replacement by totally new common shares of BDO, has rendered the
erstwhile 187.84 million EPCIB shares of SSS “unrecoverable” in the contemplation of
the adverted Civil Code provision.

Same; Same; Rebus Sic Stantibus; Words and Phrases; When the service has

become so difficult as to be manifestly beyond the contemplation of the parties, total or
partial release from a prestation and from the counter-prestation is allowed; Under the
theory of rebus sic stantibus, the parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to exist, the contract also ceases to exist.
—The moot-and-academic angle would still hold sway even if it were to be assumed
hypothetically that the subject Shares are still existing. This is so, for the supervening
BDO-EPCIB merger has so effected changes in the circumstances of SSS and
BDO/BDO Capital as to render the fulfillment of any of the obligations that each may
have agreed to undertake under either the LetterAgreement, the SPA or the Swiss
Challenge package legally impossible. When the service has become so difficult as to
be manifestly beyond the contemplation of the parties, total or partial release from a
prestation and from the counter-prestation is allowed. Under the theory of rebus sic
stantibus, the parties stipulate in the light of certain prevailing conditions, and once
these conditions cease to exist, the contract also ceases to exist. Upon the facts
obtaining in this case, it is abundantly clear that the conditions in which SSS and BDO
Capital and/or BDO executed the Letter-Agreement upon which the pricing component
—at P43.50 per share—of the Invitation to Bid was predicated, have ceased to exist.
Accordingly, the implementation of the Letter-Agreement or of the challenged Res. Nos.
428 and 485 cannot plausibly push through, even if the central figures in this case are
so minded.

Same; Issuer Tender Offers; Issuer Tender Offer is a phrase which means a

publicly announced intention by an issuer to acquire any of its own class of equity
securities or by an affiliate of such issuer to acquire such securities.—Lest it be
overlooked, BDO-EPCI, in a manner of speaking, stands now as the issuer of what
were once the subject Shares. Consequently, should SSS opt to exit from BDO and
BDO Capital, or BDO Capital, in turn, opt to pursue SSS’s shareholdings in EPCIB, as
thus converted into BDO shares, the sale-purchase ought to be via an Issuer Tender
Offer—a phrase which means a publicly announced intention by an issuer to acquire
any of its own class of equity securities or by an affiliate of such issuer to acquire such
securities. In that eventuality, BDO or BDO Capital cannot possibly exercise the “right to
match” under the Swiss Challenge procedure, a tender offer being wholly inconsistent
with public bidding. The offeror or buyer in an issue tender offer transaction proposes to
buy or acquire, at the stated price and given terms, its own shares of stocks held by its
own stockholder who in turn simply have to accept the tender to effect the sale. No
bidding is involved in the process.

[8] G.R. No. 135808             October 6, 2008

SECURITIES AND EXCHANGE COMMISSION, petitioner,

vs.INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S.
VILLARICA, PELAGIO RICALDE, ANTONIO REINA, FRANCISCO ANONUEVO,
JOSEPH SY and SANTIAGO TANCHAN, JR., respondents.

Revised Securities Act; Administrative Law; Statutes; The mere absence of

implementing rules cannot effectively invalidate provisions of law, where a reasonable
construction that will support the law may be given.—In the absence of any
constitutional or statutory infirmity, which may concern Sections 30 and 36 of the
Revised Securities Act, this Court upholds these provisions as legal and binding. It is
well settled that every law has in its favor the presumption of validity. Unless and until a
specific provision of the law is declared invalid and unconstitutional, the same is valid
and binding for all intents and purposes. The mere absence of implementing rules
cannot effectively invalidate provisions of law, where a reasonable construction that will
support the law may be given. In People v. Rosenthal, 68 Phil. 328 (1939), this Court
ruled that: In this connection we cannot pretermit reference to the rule that “legislation
should not be held invalid on the ground of uncertainty if susceptible of any reasonable
construction that will support and give it effect. An Act will not be declared inoperative
and ineffectual on the ground that it furnishes no adequate means to secure the
purpose for which it is passed, if men of common sense and reason can devise and
provide the means, and all the instrumentalities necessary for its execution are within
the reach of those intrusted therewith.” (25 R.C.L., pp. 810, 811)

Same; To rule that the absence of implementing rules can render ineffective an act
of Congress, such as the Revised Securities Act, would empower the administrative
bodies to defeat the legislative will by delaying the implementing rules; To assert that a
law is less than a law, because it is made to depend on a future event or act, is to rob
the Legislature of the power to act wisely for the public welfare whenever a law is
passed relating to a state of affairs not yet developed, or to things future and impossible
to fully know.—The necessity for vesting administrative authorities with power to make
rules and regulations is based on the impracticability of lawmakers’ providing general
regulations for various and varying details of management. To rule that the absence of
implementing rules can render ineffective an act of Congress, such as the Revised
Securities Act, would empower the administrative bodies to defeat the legislative will by
delaying the implementing rules. To assert that a law is less than a law, because it is
made to depend on a future event or act, is to rob the Legislature of the power to act
wisely for the public welfare whenever a law is passed relating to a state of affairs not
yet developed, or to things future and impossible to fully know. It is well established that
administrative authorities have the power to promulgate rules and regulations to
implement a given statute and to effectuate its policies, provided such rules and
regulations conform to the terms and standards prescribed by the statute as well as
purport to carry into effect its general policies. Nevertheless, it is undisputable that the
rules and regulations cannot assert for themselves a more extensive prerogative or
deviate from the mandate of the statute. Moreover, where the statute contains sufficient
standards and an unmistakable intent, as in the case of Sections 30 and 36 of the
Revised Securities Act, there should be no impediment to its implementation.

Same; Insider Trading; Section 30 of the Revised Securities Act explains in simple
terms that the insider’s misuse of nonpublic and undisclosed information is the
gravamen of illegal conduct—the intent of the law is the protection of investors against
fraud, committed when an insider, using secret information, takes advantage of an
uninformed investor.—The provision explains in simple terms that the insider’s misuse
of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent
of the law is the protection of investors against fraud, committed when an insider, using
secret information, takes advantage of an uninformed investor. Insiders are obligated to
disclose material information to the other party or abstain from trading the shares of his
corporation. This duty to disclose or abstain is based on two factors: first, the existence
of a relationship giving access, directly or indirectly, to information intended to be
available only for a corporate purpose and not for the personal benefit of anyone;
and second, the inherent unfairness involved when a party takes advantage of such
information knowing it is unavailable to those with whom he is dealing.

Same; Same; Words and Phrases; “Material Fact,” “Reasonable Person,” “Nature
and Reliability,” and “Generally Available,” Explained; Under the law, what is required to
be disclosed is a fact of “special significance” which may be (a) a material fact which
would be likely, on being made generally available, to affect the market price of a
security to a significant extent, or (b) one which a reasonable person would consider
especially important in determining his course of action with regard to the shares of
stock; In determining whether or not the terms “material fact,” “reasonable person,”
“nature and reliability,” and “generally available,” are vague, they must be evaluated in
the context of Section 30 of the Revised Securities Act.—Respondents further aver that
under Section 30 of the Revised Securities Act, the SEC still needed to define the
following terms: “material fact,” “reasonable person,” “nature and
reliability” and “generally available.” In determining whether or not these terms are
vague, these terms must be evaluated in the context of Section 30 of the Revised
Securties Act. To fully understand how the terms were used in the aforementioned
provision, a discussion of what the law recognizes as a fact of special significance is
required, since the duty to disclose such fact or to abstain from any transaction is
imposed on the insider only in connection with a fact of special significance. Under the
law, what is required to be disclosed is a fact of “special significance” which may be
(a) a material fact which would be likely, on being made generally available, to affect the
market price of a security to a significant extent, or (b) one which a reasonable person
would consider especially important in determining his course of action with regard to
the shares of stock.

Same; Same; Same; A fact is material if it induces or tends to induce or otherwise

affect the sale or purchase of its securities.—Material Fact—The concept of a “material
fact” is not a new one. As early as 1973, the Rules Requiring Disclosure of Material
Facts by Corporations Whose Securities Are Listed In Any Stock Exchange or
Registered/Licensed Under the Securities Act, issued by the SEC on 29 January 1973,
explained that “[a] fact is material if it induces or tends to induce or otherwise affect the
sale or purchase of its securities.” Thus, Section 30 of the Revised Securities Act
provides that if a fact affects the sale or purchase of securities, as well as its price, then
the insider would be required to disclose such information to the other party to the
transaction involving the securities. This is the first definition given to a “fact of special
significance.”

Same; Same; Same; A “reasonable person” is not a problematic legal concept that
needs to be clarified for the purpose of giving effect to a statute; rather, it is the
standard on which most of our legal doctrines stand.—Reasonable Person—The
second definition given to a fact of special significance involves the judgment of a
“reasonable person.” Contrary to the allegations of the respondents, a “reasonable
person” is not a problematic legal concept that needs to be clarified for the purpose of
giving effect to a statute; rather, it is the standard on which most of our legal doctrines
stand. The doctrine on negligence uses the discretion of the “reasonable man” as the
standard. A purchaser in good faith must also take into account facts which put a
“reasonable man” on his guard. In addition, it is the belief of the reasonable and prudent
man that an offense was committed that sets the criteria for probable cause for a
warrant of arrest. This Court, in such cases, differentiated the reasonable and prudent
man from “a person with training in the law such as a prosecutor or a judge,” and
identified him as “the average man on the street,” who weighs facts and circumstances
without resorting to the calibrations of our technical rules of evidence of which his
knowledge is nil. Rather, he relies on the calculus of common sense of which all
reasonable men have in abundance. In the same vein, the U.S. Supreme Court similarly
determined its standards by the actual significance in the deliberations of a “reasonable
investor,” when it ruled in TSC Industries, Inc. v. Northway, Inc., 48 L ed 2d 757, 766
(1976), that the determination of materiality “requires delicate assessments of the
inferences a ‘reasonable shareholder’ would draw from a given set of facts and the
significance of those inferences to him.”

Same; Same; Same; The “nature and reliability” of a significant fact in determining
the course of action a reasonable person takes regarding securities must be clearly
viewed in connection with the particular circumstances of a case—to enumerate all
circumstances that would render the “nature and reliability” of a fact to be of special
significance is close to impossible.—Nature and Reliability—The factors affecting the
second definition of a “fact of special significance,” which is of such importance that it is
expected to affect the judgment of a reasonable man, were substantially lifted from a
test of materiality pronounced in the case In the Matter of Investors Management Co.,
Inc.: Among the factors to be considered in determining whether information is material
under this test are the degree of its specificity, the extent to which it differs from
information previously publicly disseminated, and its reliability in light of its nature and
source and the circumstances under which it was received. It can be deduced from the
foregoing that the “nature and reliability” of a significant fact in determining the course of
action a reasonable person takes regarding securities must be clearly viewed in
connection with the particular circumstances of a case. To enumerate all circumstances
that would render the “nature and reliability” of a fact to be of special significance is
close to impossible. Nevertheless, the proper adjudicative body would undoubtedly be
able to determine if facts of a certain “nature and reliability” can influence a reasonable
person’s decision to retain, sell or buy securities, and thereafter explain and justify its
factual findings in its decision.

Same; Same; Same; What is referred to in our laws as a fact of special significance
is referred to in the U.S. as the “materiality concept” and the latter is similarly not
provided with a precise definition.—Materiality Concept—A discussion of the
“materiality concept” would be relevant to both a material fact which would affect the
market price of a security to a significant extent and/or a fact which a reasonable person
would consider in determining his or her cause of action with regard to the shares of
stock. Significantly, what is referred to in our laws as a fact of special significance is
referred to in the U.S. as the “materiality concept” and the latter is similarly not provided
with a precise definition. In Basic v. Levinson, 99 L ed 2d 194, 211 (1988), the U.S.
Supreme Court cautioned against confining materiality to a rigid formula, stating thus: A
bright-line rule indeed is easier to follow than a standard that requires the exercise of
judgment in the light of all the circumstances. But ease of application alone is not an
excuse for ignoring the purposes of the Securities Act and Congress’ policy decisions.
Any approach that designates a single fact or occurrence as always determinative of an
inherently fact-specific finding such as materiality, must necessarily be overinclusive or
underinclusive. Moreover, materiality “will depend at any given time upon a balancing of
both the indicated probability that the event will occur and the anticipated magnitude of
the event in light of the totality of the company activity.”

Same; Same; Same; Whether information found in a newspaper, a specialized

magazine, or any cyberspace media be sufficient for the term “generally available” is
a matter which may be adjudged given the particular circumstances of the case—the
standards cannot remain at a standstill, as a medium, which is widely used today was,
at some previous point in time, inaccessible to most.—Generally Available—Section
30 of the Revised Securities Act allows the insider the defense that in a transaction of
securities, where the insider is in possession of facts of special significance, such
information is “generally available” to the public. Whether information found in a
newspaper, a specialized magazine, or any cyberspace media be sufficient for the term
“generally available” is a matter which may be adjudged given the particular
circumstances of the case. The standards cannot remain at a standstill. A medium,
which is widely used today was, at some previous point in time, inaccessible to most.
Furthermore, it would be difficult to approximate how the rules may be applied to the
instant case, where investigation has not even been started. Respondents failed to
allege that the negotiations of their agreement with GHB were made known to the public
through any form of media for there to be a proper appreciation of the issue presented.

Same; Same; Same; Beneficial Owner; Parties; Locus Standi; Beneficial owner has
been defined, first, to indicate the interest of a beneficiary in trust property (also called
“equitable ownership”), and second, to refer to the power of a corporate shareholder to
buy or sell the shares, though the shareholder is not registered in the corporation’s
book as the owner; Usually, beneficial ownership is distinguished from naked
ownership, which is the enjoyment of all the benefits and privileges of ownership, as
against possession of the bare title to property; The validity of a statute may be
contested only by one who will sustain a direct injury as a result of its enforcement. —
Section 36(a) refers to the “beneficial owner.” Beneficial owner has been defined in the
following manner: [F]irst, to indicate the interest of a beneficiary in trust property (also
called “equitable ownership”); and second, to refer to the power of a corporate
shareholder to buy or sell the shares, though the shareholder is not registered in the
corporation’s books as the owner. Usually, beneficial ownership is distinguished from
naked ownership, which is the enjoyment of all the benefits and privileges of ownership,
as against possession of the bare title to property. Even assuming that the term
“beneficial ownership” was vague, it would not affect respondents’ case, where the
respondents are directors and/or officers of the corporation, who are specifically
required to comply with the reportorial requirements under Section 36(a) of the Revised
Securities Act. The validity of a statute may be contested only by one who will sustain a
direct injury as a result of its enforcement.

Same; Same; Sections 30 and 36 of the Revised Securities Act were enacted to
promote full disclosure in the securities market and prevent unscrupulous individuals,
who by their positions obtain non-public information, from taking advantage of an
uninformed public.—Sections 30 and 36 of the Revised Securities Act were enacted to
promote full disclosure in the securities market and prevent unscrupulous individuals,
who by their positions obtain non-public information, from taking advantage of an
uninformed public. No individual would invest in a market which can be manipulated by
a limited number of corporate insiders. Such reaction would stifle, if not stunt, the
growth of the securities market. To avert the occurrence of such an event, Section 30 of
the Revised Securities Act prevented the unfair use of non-public information in
securities transactions, while Section 36 allowed the SEC to monitor the transactions
entered into by corporate officers and directors as regards the securities of their
companies.

Same; Same; Administrative Law; Statutes; The fact that the Full Disclosure Rules
were promulgated by the Securities and Exchange Commission (SEC) only on 24
July 1996, even as the Revised Securities Act was approved on 23 February 1982,
does not render ineffective in the meantime Section 36 of the Revised Securities Act;
The effectivity of a statute which imposes reportorial requirements cannot be
suspended by the issuance of specified forms, especially where compliance therewith
may be made even without such forms.—The Revised Securities Act was approved on
23 February 1982. The fact that the Full Disclosure Rules were promulgated by the SEC
only on 24 July 1996 does not render ineffective in the meantime Section 36 of the
Revised Securities Act. It is already unequivocal that the Revised Securities Act
requires full disclosure and the Full Disclosure Rules were issued to make the
enforcement of the law more consistent, efficient and effective. It is equally reasonable
to state that the disclosure forms later provided by the SEC, do not, in any way imply
that no compliance was required before the forms were provided. The effectivity of a
statute which imposes reportorial requirements cannot be suspended by the issuance of
specified forms, especially where compliance therewith may be made even without such
forms. The forms merely made more efficient the processing of requirements already
identified by the statute.

Same; Same; Same; Administrative Code of 1987 (E.O. 282); Chapter 3, Book VII
of the Administrative Code, entitled “Adjudication,” does not affect the investigatory
functions of the agencies—the Rules of Practice and Procedure of Securities and
Exchange Commission’s (SEC’s) Prosecution and Enforcement Department (PED)
need not comply with the provisions of the Administrative Code on adjudication,
particularly Section 12(3), Chapter 3, Book VII.—It must be pointed out that Chapter 3,
Book VII of the Administrative Code, entitled “Adjudication,” does not affect the
investigatory functions of the agencies. The law creating the PED, Section 8 of
Presidential Decree No. 902-A, as amended, defines the authority granted to the PED,
thus: SEC. 8. The Prosecution and Enforcement Department shall have, subject to the
Commission’s control and supervision, the exclusive authority to investigate, on
complaint or motu proprio, any act or omission of the Board of Directors/Trustees of
corporations, or of partnerships, or of other associations, or of their stockholders,
officers or partners, including any fraudulent devices, schemes or representations, in
violation of any law or rules and regulations administered and enforced by the
Commission; to file and prosecute in accordance with law and rules and regulations
issued by the Commission and in appropriate cases, the corresponding criminal or civil
case before the Commission or the proper court or body upon prima facie finding of
violation of any laws or rules and regulations administered and enforced by the
Commission; and to perform such other powers and functions as may be provided by
law or duly delegated to it by the Commission. (Emphasis provided.) The law creating
PED empowers it to investigate violations of the rules and regulations promulgated by
the SEC and to file and prosecute such cases. It fails to mention any adjudicatory
functions insofar as the PED is concerned. Thus, the PED Rules of Practice and
Procedure need not comply with the provisions of the Administrative Code on
adjudication, particularly Section 12(3), Chapter 3, Book VII.

Same; Same; Same; “Investigative” and “Adjudicative” Functions, Distinguished;

Words and Phrases.—In Cariño v. Commission on Human Rights, 204 SCRA 483
(1991), this Court sets out the distinction between investigative and adjudicative
functions, thus: “Investigate,” commonly understood, means to examine, explore,
inquire or delve or probe into, research on, study. The dictionary definition of
“investigate” is “to observe or study closely; inquire into systematically: “to search or
inquire into” xx to subject to an official probe xx: to conduct an official inquiry.” The
purpose of an investigation, of course is to discover, to find out, to learn, obtain
information. Nowhere included or intimated is the notion of settling, deciding or resolving
a controversy involved in the facts inquired into by application of the law to the facts
established by the inquiry. The legal meaning of “investigate” is essentially the same:
“(t)o follow up step by step by patient inquiry or observation. To trace or track; to search
into; to examine and inquire into with care and accuracy; to find out by careful
inquisition; examination; the taking of evidence; a legal inquiry;” “to inquire; to make an
investigation,” “investigation” being in turn described as “(a)n administrative function, the
exercise of which ordinarily does not require a hearing. 2 Am J2d Adm L Sec. 257; xx
an inquiry, judicial or otherwise, for the discovery and collection of facts concerning a
certain matter or matters.” “Adjudicate,” commonly or popularly understood, means to
adjudge, arbitrate, judge, decide, determine, resolve, rule on, settle. The dictionary
defines the term as “to settle finally (the rights and duties of parties to a court case) on
the merits of issues raised: xx to pass judgment on: settle judicially: xx act as judge.”
And “adjudge” means “to decide or rule upon as a judge or with judicial or quasi-judicial
powers: xx to award or grant judicially in a case of controversy x x x.” In a legal sense,
“adjudicate” means: “To settle in the exercise of judicial authority. To determine finally.
Synonymous with adjudge in its strictest sense;” and “adjudge” means: “To pass on
judicially, to decide, settle, or decree, or to sentence or condemn. x x x Implies a judicial
determination of a fact, and the entry of a judgment.”

Same; Same; Same; Under Section 2.2 of Exceutive Order No. 26, issued on 7
October 1992, abbreviated proceedings are prescribed in the administrative cases.—
This is not to say that administrative bodies performing adjudicative functions are
required to strictly comply with the requirements of Chapter 3, Rule VII of the
Administrative Code, particularly, the right to cross-examination. It should be noted that
under Section 2.2 of Executive Order No. 26, issued on 7 October 1992, abbreviated
proceedings are prescribed in the disposition of administrative cases: 2. Abbreviation of
Proceedings. All administrative agencies are hereby directed to adopt and include in
their respective Rules of Procedure the following provisions: x x x x 2.2 Rules adopting,
unless otherwise provided by special laws and without prejudice to Section 12, Chapter
3, Book VII of the Administrative Code of 1987, the mandatory use of affidavits in lieu of
direct testimonies and the preferred use of depositions whenever practicable and
convenient. As a consequence, in proceedings before administrative or quasi-judicial
bodies, such as the National Labor Relations Commission and the Philippine Overseas
Employment Agency, created under laws which authorize summary proceedings,
decisions may be reached on the basis of position papers or other documentary
evidence only. They are not bound by technical rules of procedure and evidence. In
fact, the hearings before such agencies do not connote full adversarial proceedings.
Thus, it is not necessary for the rules to require affiants to appear and testify and to be
cross-examined by the counsel of the adverse party. To require otherwise would negate
the summary nature of the administrative or quasi-judicial proceedings.

Same; Same; Securities Regulation Code; Statutes; Statutory Construction; While

the absolute repeal of a law generally deprives a court of its authority to penalize the
person charged with the violation of the old law prior to its appeal, an exception to this
rule comes about when the repealing law punishes the act previously penalized under
the old law.—The Securities Regulations Code absolutely repealed the Revised
Securities Act. While the absolute repeal of a law generally deprives a court of its
authority to penalize the person charged with the violation of the old law prior to its
appeal, an exception to this rule comes about when the repealing law punishes the act
previously penalized under the old law. The Court, in Benedicto v. Court of Appeals,
364 SCRA 334 (2001), sets down the rules in such instances: As a rule, an absolute
repeal of a penal law has the effect of depriving the court of its authority to punish a
person charged with violation of the old law prior to its repeal. This is because an
unqualified repeal of a penal law constitutes a legislative act of rendering legal what had
been previously declared as illegal, such that the offense no longer exists and it is as if
the person who committed it never did so. There are, however, exceptions to the rule.
One is the inclusion of a saving clause in the repealing statute that provides that the
repeal shall have no effect on pending actions. Another exception is where the
repealing act reenacts the former statute and punishes the act previously penalized
under the old law. In such instance, the act committed before the reenactment
continues to be an offense in the statute books and pending cases are not affected,
regardless of whether the new penalty to be imposed is more favorable to the accused.

Same; Same; Prescription; Preliminary Investigation; It is an established doctrine

that a preliminary investigation interrupts the prescription period.—It is an established
doctrine that a preliminary investigation interrupts the prescription period. A preliminary
investigation is essentially a determination whether an offense has been committed, and
whether there is probable cause for the accused to have committed an offense: A
preliminary investigation is merely inquisitorial, and it is often the only means of
discovering the persons who may be reasonably charged with a crime, to enable the
fiscal to prepare the complaint or information. It is not a trial of the case on the merits
and has no purpose except that of determining whether a crime has been committed or
whether there is probable cause to believe that the accused is guilty thereof. Under
Section 45 of the Revised Securities Act, which is entitled Investigations, Injunctions
and Prosecution of Offenses, the Securities Exchange Commission (SEC) has the
authority to “make such investigations as it deems necessary to determine whether any
person has violated or is about to violate any provision of this Act XXX.” After a finding
that a person has violated the Revised Securities Act, the SEC may refer the case to
the DOJ for preliminary investigation and prosecution.

Same; Same; Same; Same; Doctrine of Primary Jurisdiction; A criminal complaint

is first filed with the Securities and Exchange Commission, which determines the
existence of probable cause, before a preliminary investigation can be commenced by
the Department of Justice—a criminal complaint for violation of any law or rule
administered by the Securities and Exchange Commission (SEC) must first be filed with
the latter. If the Commission finds that there is probable cause, then it should refer the
case to the Department of Justice (DOJ); A criminal charge for violation of the
Securities Regulation Code is a specialized dispute, hence it must first be referred to an
administrative agency of special competence, i.e., the Securities and Exchange
Commission (SEC); Under the doctrine of primary jurisdiction, courts will not determine
a controversy involving a question within the jurisdiction of the administrative tribunal,
where the question demands the exercise of sound administrative discretion requiring
the specialized knowledge and expertise of said administrative tribunal to determine
technical and intricate matters of fact.—While the SEC investigation serves the same
purpose and entails substantially similar duties as the preliminary investigation
conducted by the DOJ, this process cannot simply be disregarded. In Baviera v.
Paglinawan, 515 SCRA 170 (2007), this Court enunciated that a criminal complaint is
first filed with the SEC, which determines the existence of probable cause, before a
preliminary investigation can be commenced by the DOJ. In the aforecited case, the
complaint filed directly with the DOJ was dismissed on the ground that it should have
been filed first with the SEC. Similarly, the offense was a violation of the Securities
Regulations Code, wherein the procedure for criminal prosecution was reproduced from
Section 45 of the Revised Securities Act. This Court affirmed the dismissal, which it
explained thus: The Court of Appeals held that under the above provision, a criminal
complaint for violation of any law or rule administered by the SEC must first be filed with
the latter. If the Commission finds that there is probable cause, then it should refer the
case to the DOJ. Since petitioner failed to comply with the foregoing procedural
requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint in
I.S. No. 2004-229. A criminal charge for violation of the Securities Regulation Code is a
specialized dispute. Hence, it must first be referred to an administrative agency of
special competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts will
not determine a controversy involving a question within the jurisdiction of the
administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the specialized knowledge and expertise of said
administrative tribunal to determine technical and intricate matters of fact. The
Securities Regulation Code is a special law. Its enforcement is particularly vested in the
SEC. Hence, all complaints for any violation of the Code and its implementing rules and
regulations should be filed with the SEC. Where the complaint is criminal in nature, the
SEC shall indorse the complaint to the DOJ for preliminary investigation and
prosecution as provided in Section 53.1 earlier quoted.

Same; Same; Same; Same; The law on the prescription period was never intended
to put the prosecuting bodies in an impossible bind in which the prosecution of a case
would be placed way beyond their control, for even if they avail themselves of the
proper remedy, they would still be barred from investigating and prosecuting the case.—
To reiterate, the SEC must first conduct its investigations and make a finding of
probable cause in accordance with the doctrine pronounced in Baviera v.
Paglinawan, 515 SCRA 170 (2007). In this case, the DOJ was precluded from initiating
a preliminary investigation since the SEC was halted by the Court of Appeals from
continuing with its investigation. Such a situation leaves the prosecution of the case at a
standstill, and neither the SEC nor the DOJ can conduct any investigation against the
respondents, who, in the first place, sought the injunction to prevent their prosecution.
All that the SEC could do in order to break the impasse was to have the Decision of the
Court of Appeals overturned, as it had done at the earliest opportunity in this case.
Therefore, the period during which the SEC was prevented from continuing with its
investigation should not be counted against it. The law on the prescription period was
never intended to put the prosecuting bodies in an impossible bind in which the
prosecution of a case would be placed way beyond their control; for even if they avail
themselves of the proper remedy, they would still be barred from investigating and
prosecuting the case.
Same; Same; Same; Same; Given the nature and purpose of the investigation
conducted by the Securities and Exchange Commission (SEC), which is equivalent to
the preliminary investigation conducted by the Department of Justice (DOJ) in criminal
cases, such investigation would surely interrupt the prescription period.—Indubitably,
the prescription period is interrupted by commencing the proceedings for the
prosecution of the accused. In criminal cases, this is accomplished by initiating the
preliminary investigation. The prosecution of offenses punishable under the Revised
Securities Act and the Securities Regulations Code is initiated by the filing of a
complaint with the SEC or by an investigation conducted by the SEC motu proprio. Only
after a finding of probable cause is made by the SEC can the DOJ instigate a
preliminary investigation. Thus, the investigation that was commenced by the SEC in
1995, soon after it discovered the questionable acts of the respondents, effectively
interrupted the prescription period. Given the nature and purpose of the investigation
conducted by the SEC, which is equivalent to the preliminary investigation conducted by
the DOJ in criminal cases, such investigation would surely interrupt the prescription
period.

[9] G.R. No. 154131             July 20, 2006

SECURITIES AND EXCHANGE COMMISSION, petitioner,

vs. PERFORMANCE FOREIGN EXCHANGE CORPORATION, respondent.

Securities Regulations Code (R.A. No. 8799); There are two essential

requirements that must be complied with by the Securities and Exchange Commission
(SEC) before it may issue a cease and desist order—first, it must conduct proper
investigation or verification, and, second, there must be a finding that the act or
practice, unless restrained, will operate as a fraud on investors or is otherwise likely to
cause grave or irreparable injury or prejudice to the investing public.—The issue for our
resolution is whether petitioner SEC acted with grave abuse of discretion in issuing the
Cease and Desist Order and its subsequent Order making it permanent. Section 64 of
R.A. No. 8799, provides: Sec. 64. Cease and Desist Order.—64.1. The
Commission, after proper investigation or verification, motu proprio, or upon verified
complaint by any aggrieved party, may issue a cease and desist order without the
necessity of a prior hearing if in its judgment the act or practice, unless restrained, will
operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury
or prejudice to the investing public. x x x. (Italics supplied) Under the above provision,
there are two essential requirements that must be complied with by the SEC before it
may issue a cease and desist order: First, it must conduct proper investigation or
verification; and Second, there must be a finding that the act or practice, unless
restrained, will operate as a fraud on investors or is otherwise likely to cause grave or
irreparable injury or prejudice to the investing public.
 Same; A clarificatory conference undertaken by the SEC regarding a corporation’s
business operations cannot be considered a proper investigation or verification process
to justify the issuance of a Cease and Desist Order.—Here, the first requirement is not
present. Petitioner did not conduct proper investigation or verification before it issued
the challenged orders. The clarificatory conference undertaken by petitioner regarding
respondent’s business operations cannot be considered a proper investigation or
verification process to justify the issuance of the Cease and Desist Order. It was merely
an initial stage of such process, considering that after it issued the said order following
the clarificatory conference, petitioner still sought verification from the BSP on the
nature of respondent’s business activity.

Same; The investigation, to be proper, must be conducted by the SEC before, not

after, issuing the Cease and Desist Order.—Petitioner’s act of referring the matter to the
BSP is an essential part of the investigation and verification process. In fact, such
referral indicates that petitioner concedes to the BSP’s expertise in determining the
nature of respondent’s business. It bears stressing, however, that such investigation
and verification, to be proper, must be conducted by petitioner before, not after, issuing
the Cease and Desist Order in question. This, petitioner utterly failed to do. The
issuance of such order even before it could finish its investigation and verification on
respondent’s business activity obviously contravenes Section 64 of R.A. No. 8799
earlier quoted.

Same; Before a cease and desist order may be issued by SEC, there must be a
showing that the act or practice sought to be restrained will operate as a fraud on
investors or is likely to cause grave, irreparable injury or prejudice to the investing
public implies that the act to be restrained has been determined after conducting the
proper investigation/verification.—Which brings us to the second requirement. Before a
cease and desist order may be issued by the SEC, there must be a showing that the act
or practice sought to be restrained will operate as a fraud on investors or is likely to
cause grave, irreparable injury or prejudice to the investing public. Such requirement
implies that the act to be restrained has been determined after conducting the proper
investigation/verification. In this case, the nature of the act to be restrained can only be
determined after the BSP shall have submitted its findings to petitioner. However, there
is nothing in the questioned Orders that shows how the public is greatly prejudiced or
damaged by respondent’s business operation.
G.R. No. 106357 September 3, 1998

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
PRISCILLA BALASA, NORMITA VISAYA, GUILLERMO FRANCISCO, NORMA
FRANCISCO and ANALINA FRANCISCO, accused, NORMA FRANCISCO,
GUILLERMO FRANCISCO and ANALINA FRANCISCO, accused-appellants.

G.R. No. 108601-02 September 3, 1998

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
PRISCILLA BALASA, NORMITA VISAYA, GUILLERMO FRANCISCO, NORMA
FRANCISCO and ANALINA FRANCISCO, accused, NORMA FRANCISCO,
GUILLERMO FRANCISCO and ANALINA FRANCISCO, accused-appellants.

Criminal Law; Estafa; Greed has always been one of man’s failings—the hope of
greater gain has lured many a man to throw caution, and his common sense, to the
wind.—Greed has always been one of man’s failings. The hope of greater gain has
lured many a man to throw caution, and his common sense, to the wind. This human
foible, known to many, has been exploited throughout the ages by con men, charlatans
and cheats to bilk the gullible public of their hard-earned money. History has thus seen
the unraveling of various disingenuous stratagems which are at bottom nothing but
scams. The case at hand once again proves that “a sucker is born every minute.”
Same; Same; Elements of Estafa.—For the first assignment of error, we hold that the
elements of the crime defined and penalized by P.D. No. 1689 have been proven
beyond reasonable doubt in these appealed cases. The informations filed against
appellants alleged that by means of false representation or false pretenses and through
fraudulent means, complainants were defrauded of various amounts of money by the
accused. Article 315, paragraph 2(a) of the Revised Penal Code provides that swindling
or estafa by false pretenses or fraudulent acts executed prior to or simultaneously with
the commission of the fraud is committed by “using fictitious name, or falsely pretending
to possess power, influence, qualifications, property, credit, agency, business or
imaginary transactions, or by other similar deceits.” The elements of estafa under this
penal provision are: (1) the accused defrauded another by means of deceit and (2)
damage or prejudice capable of pecuniary estimation is caused to the offended party or
third party. It is indisputable that the foundation failed to return the investments of the
complaining witnesses, hence it is undeniable that the complainants suffered damage in
the amount of their unrecouped investments. What needs elucidation is whether or not
the element of defraudation by means of deceit has been established beyond
reasonable doubt.

Same; Same; Words and Phrases; “Fraud” and “Deceit,” Ex-plained.—Fraud, in its
general sense, is deemed to comprise any-thing calculated to deceive, including all
acts, omissions, and concealment involving a breach of legal or equitable duty, trust, or
confidence justly reposed, resulting in damage to another, or by which an undue and
unconscientious advantage is taken of another. It is a generic term embracing all
multifarious means which human ingenuity can device, and which are resorted to by
one individual to secure an advantage over another by false suggestions or by
suppression of truth and includes all surprise, trick, cunning, dissembling and any unfair
way by which another is cheated. On the other hand, deceit is the false representation
of a matter of fact whether by words or conduct, by false or misleading allegations, or by
concealment of that which should have been disclosed which deceives or is intended to
deceive another so that he shall act upon it to his legal injury.

Same; Same; Fraud; Where one states that the future profits or income of an enterprise
shall be a certain sum, but he actually knows that there will be none, or that they will be
substantially less than he represents, the statement constitutes actionable fraud where
the hearer believes him and relies on the statement to his injury.—The testimonial
evidence presented by the prosecution proves that appellants employed fraud and
deceit upon gullible people to convince them to invest in the foundation. It has been
held that where one states that the future profits or income of an enterprise shall be a
certain sum, but he actually knows that there will be none, or that they will be
substantially less than he represents, the statement constitutes actionable fraud where
the hearer believes him and relies on the statement to his injury. That there was no
profit forthcoming can be clearly deduced from the fact that the foundation was not
engaged nor authorized to engage in any lucrative business to finance its operation. It
was not shown that it was the recipient of donations or bequest with which to finance its
“double or triple your money” scheme, nor did it have any operating capital to speak of
when it started operations.
Same; Same; Same; Ponzi Scheme; Pyramid Scheme; Words and Phrases; “Ponzi
Scheme,” Explained.—Parenthetically, what appellants offered the public was a “Ponzi
scheme,” an investment program that offers impossibly high returns and pays these
returns to early investors out of the capital contributed by later investors. Named after
Charles Ponzi who promoted the scheme in the 1920s, the original scheme involved the
issuance of bonds which offered 50% interest in 45 days or a 100% profit if held for 90
days. Basically, Ponzi used the money he received from later investors to pay
extravagant rates of return to early investors, thereby inducing more investors to place
their money with him in the false hope of realizing this same extravagant rate of return
themselves. This was the very same scheme practiced by the Panata Foundation.

Same; Same; Same; Same; Same; Same; The idea behind this type of swindle is that
the “con-man” collects his money from his second or third round of investors and then
absconds before anyone else shows up to collect.—The Ponzi scheme works only as
long as there is an ever-increasing number of new investors joining the scheme. To pay
off the 50% bonds Ponzi had to come up with a one-and-a-half times increase with each
round. To pay 100% profit he had to double the number of investors at each stage, and
this is the reason why a Ponzi scheme is a scheme and not an investment strategy. The
progression it depends upon is unsustainable. The pattern of increase in the number of
participants in the system explains how it is able to succeed in the short run and, at the
same time, why it must fail in the long run. This game is difficult to sustain over a long
period of time because to continue paying the promised profits to early investors, the
operator needs an ever larger pool of later investors. The idea behind this type of
swindle is that the “con-man” collects his money from his second or third round of
investors and then absconds before anyone else shows up to collect. Necessarily, these
schemes only last weeks, or months at most.

Same; Same; Same; Same; Same; Same; “Pyramid Scheme” or “Pyramiding Scheme,”
Explained.—This ever increasing base of investors is the reason why a Ponzi scheme is
alternatively known as a “pyramid scheme” or “pyramiding scheme.” Technically
speaking, however, a pyramid scheme is different from a Ponzi scheme. A “pyramid
sales scheme” as defined in Section 53 of R.A. 7394, known as the Consumer Act of
the Philippines, involves: “x x x sales devices whereby a person, upon condition that he
makes an investment, is granted by the manufacturer or his representative a right to
recruit for profit one or more additional persons who will also be granted such right to
recruit upon condition of making similar investments: Provided, That, the profits of the
person employing such a plan are derived primarily from the recruitment of other
persons into the plan rather than from the sale of consumer products, services and
credit: Provided, further, That the limitation on the number of participants does not
change the nature of the plan.” In the classic pyramid scheme 10 people say, make an
investment and each in turn gets 10 additional people to invest, who in their turn must
each get 10, and so on. The money for the first 10 “investors” comes from the 10 they
enroll, and the money for the second group of 10 comes from the 10 investors that each
of them enrolls, and so on. This type of scheme involves a geometric increase in the
number of “investors.” The interesting thing about a geometric progression like this is
that starting with only 10 investors, by the 10th round of such a scheme the number of
participants would have to be twice as large as the total population of the earth.
Diagrammatically, such a scheme looks like a pyramid—hence its name.

Same; Same; Same; Same; Flight; The wicked flee when no man pursueth: but the
righteous are bold as a lion.—If the foundation were indeed legitimate, the
incorporators, outside of the members of the Francisco family, would not have escaped
from the clutches of the law. If the foundation and its investment scheme were legal,
then it behooved them to come out and testify for their own exoneration. The wicked
flee when no man pursueth: but the righteous are bold as a lion.

Same; Same; Same; Same; Same; Caveat Emptor Doctrine; The rule—that where a
speaker has knowingly and deliberately made a statement concerning a fact the falsity
of which is not apparent to the hearer, and has thus accomplished a fraudulent result,
he cannot defend against the fraud by proving that the victim was negligent in failing to
discover the falsity of the statement—is said to be peculiarly applicable where the owner
of the property or a business intentionally makes a false statement concerning its rents,
profits or income, and the doctrine of caveat emptor has been held not to apply to such
a case.—The fact that the buyer makes an independent investigation or inspection has
been held not to preclude him from relying on the representation made by the seller
where the seller has superior knowledge and the falsity of such representation would
not be apparent from such examination or inspection, and, a fortiori, where the efforts of
a buyer to learn the true profits or income of a business or property are thwarted by
some device of the seller, such efforts have been held not to preclude a recovery. It has
often been held that the buyer of a business or property is entitled to rely on the seller’s
statements concerning its profits, income or rents. The rule—that where a speaker has
knowingly and deliberately made a statement concerning a fact the falsity of which is
not apparent to the hearer, and has thus accomplished a fraudulent result, he cannot
defend against the fraud by proving that the victim was negli gent in failing to discover
the falsity of the statement—is said to be peculiarly applicable where the owner of the
property or a business intentionally makes a false statement concerning its rents, profits
or income. The doctrine of caveat emptor has been held not to apply to such a case.

Same; Same; Same; Same; Same; Conspiracy; By the active cooperation of a father in
the fraudulent scheme of his daughters who were incorporators of a foundation which
served as vehicle for their schemes, he showed a community of design with them
thereby making him a co-conspirator and equally liable for the crime charged.—The
evidence adduced by the prosecution confirms the existence of a conspiracy among the
appellants in committing the crime charged. The fact that Guillermo Francisco was not
an incorporator of the foundation does not make him any less liable for the crime
charged. By his own admission, he participated in the foundation’s activities by serving
as its paymaster. Because he is father and husband to three of the organizers of the
foundation, it is not farfetched to presume that he was aware of its operations. By his
active cooperation, he showed a community of design with the incorporators of the
foundation, thereby making him a co-conspirator and equally liable for the crime
charged. His voluntary and indispensable cooperation was a concatenation of the
criminal acts performed by his co-accused. In this regard, appellant Guillermo Francisco
is not being implicated as a co-conspirator solely because he is the father of the
principal proponent of the Ponzi scheme. He is held liable as a conspirator because of
his indispensable act of being the paymaster of the foundation.

Same; Same; Same; Same; Same; Denials; Denials of an accused cannot be accorded
greater evidentiary weight than the positive declarations of credible witnesses who
testify on affirmative matters.—Norma Francisco’s bare denial cannot exempt her from
complicity. Denials of an accused cannot be accorded greater evidentiary weight than
the positive declarations of credible witnesses who testify on affirmative matters.
Moreover, her efforts to show that she was a mere housewife who simply helped in her
daughter’s “business” is refuted by the prosecution witnesses.

Same; Same; Same; Same; Same; A deaf-mute who is a co-accused in a fraudulent

scheme is incapable of communicating and conveying her thoughts to the complaining
witnesses and other de positors, casting serious doubt on whether she could be
deemed to have similarly conspired and confederated with the other accused.—As for
Analina Francisco, however, the evidence adduced as to her complicity in the nefarious
scheme is far from conclusive. While she was an incorporator and treasurer of the
foundation, there is no denying the fact that she is a deaf-mute. As such, she is
incapable of communicating and conveying her thoughts to the complaining witnesses
and other depositors. This casts serious doubt on whether she could be deemed to
have similarly conspired and confederated with the other accused. As Branch 52
pointed out, on paper she might have been in the thick of the foundation’s operation—
being an incorporator and treasurer. We are not, however, convinced that she was
actually involved in the sinister scheme. In fact, she was given the manual task of typing
papers, despite her being the treasurer of the foundation. Her disability might have been
the principal reason for giving her that job—she was literally deaf and mute to the
nefarious activities going on in the foundation that she did not pose a danger to it.
Furthermore, it is well settled that where the acts of an accused are capable of two
interpretations, that which is in consonance with innocence should prevail.

Same; Same; Constitutional Law; Double Jeopardy; Requisites; Even if several cases
arose out of the same scheme, if the fraudulent acts charged were committed against
different persons, they do not constitute the same offense.—With respect to the third
assignment of error, appellants cannot raise the defense of double jeopardy for which
the following requisites must concur: (1) a first jeopardy must have attached prior to the
second; (2) the first jeopardy must have been validly terminated; (3) the second
jeopardy must be for the same offense, or the second offense includes or is necessarily
included in the offense charged in the first information, or is an attempt to commit the
same or a frustration thereof. In the instant case, the offense charged in Criminal Case
No. 8429 is different from the offense charged in the other cases. While these cases
arose out of the same scheme, the fraudulent acts charged were committed against
different persons, hence they do not constitute the same offense.
Same; Same; Economic Sabotage; Presidential Decree No. 1689; Elements of Estafa
under Presidential Decree No. 1689; Statutory Construction; A preamble is not exactly
an essential part of an act as it is an introductory or preparatory clause that explains the
reasons for the enactment, usually introduced by the word “whereas.”—Under this law,
the elements of the crime are: (a) estafa or other forms of swindling as defined in
Articles 315 and 316 of the Revised Penal Code is committed; (b) the estafa or
swindling is committed by a syndicate; and (c) defraudation results in the
misappropriation of moneys contributed by stockholders, or members of rural banks,
cooperatives, “samahang nayon(s),” or farmers’ associations, or of funds solicited by
corporations/associations from the general public. These are the only elements of the
crime under Section 1 of the decree. The two other “ingredients” added by appellants to
constitute the crime of economic sabotage under P.D. No. 1689 have been taken from
the “whereas” clause or preamble of the law. A preamble is not exactly an essential part
of an act as it is an introductory or preparatory clause that explains the reasons for the
enactment, usually introduced by the word “whereas.” In People v. Purisima, we
explained that the preamble serves as the key to the intent and spirit of the decree. It
enumerates the facts or events justifying the promulgation of the decree and the
sanctions for the acts prohibited therein. As such, although it is an aid in interpretation,
the preamble of an act or decree is not the law subject thereof. Appellants’ novel theory
must, therefore, be given short shrift by this Court.

Same; Same; Same; Same; The fact that the entity involved is not a rural bank,
cooperative, samahang nayon or farmers’ association does not take the case out of the
coverage of P.D. No. 1689.—Similarly, the fact that the entity involved was not a rural
bank, cooperative, samahang nayon or farmers’ association does not take the case out
of the coverage of P.D. No. 1689. Its third “whereas clause” states that it also applies to
other “corporations/associations operating on funds solicited from the general public.”
The foundation fits into this category as it “operated on funds solicited from the general
public.” To construe the law otherwise would sanction the proliferation of minor-league
schemers who operate in the countryside. To allow these crimes to go unabated could
spell disaster for people from the lower income bracket, the primary target of swindlers.

Same; Same; Same; Same; Words and Phrases; “Syndicate,” Defined.—Again, P.D.
No. 1689 penalizes offenders with life imprisonment to death regardless of the amount
involved, provided that a syndicate committed the crime. A syndicate is defined in the
same law as “consisting of five or more persons formed with the intention of carrying out
the unlawful or illegal act, transaction, enterprise or scheme.” If the offenders are not
members of a syndicate, they shall nevertheless be held liable for the acts prohibited by
the law but they shall be penalized by reclusion temporal to reclusion perpetua if the
amount of the fraud is more than one hundred thousand pesos (P100,000.00).

Same; Penalties; The penalties of life imprisonment and reclusion perpetua are not the
same.—The Court finds this an opportune time to restate that the penalties of life
imprisonment and reclusion perpetua are not the same. Thus: “While ‘life imprisonment’
may appear to be the English translation of reclusion perpetua, in reality, it goes deeper
than that. First, ‘life imprisonment’ is invariably imposed for serious offenses penalized
by special laws, while reclusion perpetua is prescribed under the Revised Penal Code.
Second, ‘life imprisonment,’ unlike reclusion perpetua, does not carry with it any
accessory penalty. Third, ‘life imprisonment’ does not appear to have any definite extent
or duration, while reclusion perpetua entails imprisonment for at least thirty (30) years
after which the convict becomes eligible for pardon, although the maximum period
thereof shall in no case exceed forty (40) years.”

G.R. Nos. 115054-66. September 12, 2000.*

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. VICENTE MENIL, JR., accused-

appellant.

Criminal Law; Estafa; Under Article 315, par. 2(a) of the Revised Penal Code,
swindling or estafa by false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud is committed by “using fictitious name,
or falsely pretending to possess power, influence, qualifications, property, credit,
agency, business, or imaginary transactions, or by other similar deceits.”—Under this
provision, swindling or estafa by false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud is committed by “using fictitious name,
or falsely pretending to possess power, influence, qualifications, property, credit,
agency, business, or imaginary transactions, or by other similar deceits.” The elements
of estafa under this penal provision are: (1) the accused defrauded another by means of
deceit and (2) damage or prejudice capable of pecuniary estimation is caused to the
offended party or third party.

Same; Same; Same; What comprises fraud in general sense; Deceit Defined.—Fraud,
in its general sense, is deemed to comprise anything calculated to deceive, including all
acts, omissions, and concealment involving a breach of legal or equitable duty, trust, or
confidence justly reposed, resulting in damage to another, or by which an undue and
uncon-scientious advantage is taken of another. It is a generic term embracing all
multifarious means which human ingenuity can devise, and which are resorted to by
one individual to secure an advantage over another by false suggestions or by
suppression of truth and includes all surprise, trick, cunning, dissembling and any unfair
way by which another is cheated. On the other hand, deceit is the false representation
of a matter of fact, whether by words or conduct, by false or misleading allegations, or
by concealment of that which should have been disclosed which deceives or is intended
to deceive another so that he shall act upon it to his legal injury.

Same; Same; Same; Where one states that the future profits or income of an enterprise
shall be a certain sum, but he actually knows that there will be none, or that they will be
substantially less than he represents, the statements constitute an actionable fraud
where the hearer believes him and relies on the statement to his injury.—It has been
held that where one states that the future profits or income of an enterprise shall be a
certain sum, but he actually knows that there will be none, or that they will be
substantially less than he represents, the statements constitute an ac-tionable fraud
where the hearer believes him and relies on the statement to his injury. In the case at
bench, it is abundantly clear that ultimately, the profits which accused-appellant
promised to his investors would not be realized. Accused-appellant admitted during his
testimony that the money he used to pay off maturing investments were taken from the
remittances received by ABM Development Center, Inc.

Same; Same; P.D. No. 1689 penalizes offenders with life imprisonment to death
regardless of the amount involved, provided that a syndicate committed the crime;
Syndicate Defined.—P.D. No. 1689 thus penalizes offenders with life imprisonment to
death regardless of the amount involved, provided that a syndicate committed the
crime. A syndicate is defined in the same law as “consisting of five or more persons
formed with the intention of carrying out the unlawful or illegal act, transaction,
enterprise or scheme.” If the offenders are not members of a syndicate, they shall
nevertheless be held liable for the acts prohibited by the law but they shall be penalized
by reclusion temporal to reclusion perpetua if the amount of the fraud is more than one
hundred thousand pesos.

G.R. No. 195542

SECURITIES AND EXCHANGE COMMISSION, Petitioner,

vs.
OUDINE SANTOS, Respondent.
Remedial Law; Criminal Procedure; Preliminary Investigation; Generally, at the
preliminary investigation proper, the investigating prosecutor, and ultimately, the
Secretary of the Department of Justice (DOJ), is afforded wide latitude of discretion in
the exercise of its power to determine probable cause to warrant criminal prosecution.—
Generally, at the preliminary investigation proper, the investigating prosecutor, and
ultimately, the Secretary of the DOJ, is afforded wide latitude of discretion in the
exercise of its power to determine probable cause to warrant criminal prosecution. The
determination of probable cause is an executive function where the prosecutor
determines merely that a crime has been committed and that the accused has
committed the same. The rules do not require that a prosecutor has moral certainty of
the guilt of a person simply for preliminary investigation purposes.

Same; Same; Same; The authority of the prosecutor and the Department of Justice
(DOJ) is not absolute; it cannot be exercised arbitrarily or capriciously.—The authority of
the prosecutor and the DOJ is not absolute; it cannot be exercised arbitrarily or
capriciously. Where the findings of the investigating prosecutor or the Secretary of the
DOJ as to the existence of probable cause are equivalent to a gross misapprehension
of facts, certiorari will lie to correct these errors. While it is our policy not to interfere in
the conduct of preliminary investigations, we have, on more than one occasion, adhered
to some exceptions to the general rule: 1. when necessary to afford adequate protection
to the constitutional rights of the accused; 2. when necessary for the orderly
administration of justice or to avoid oppression or multiplicity of actions; 3. when there is
a prejudicial question which is sub judice; 4. when the acts of the officer are without or
in excess of authority; 5. where the prosecution is under an invalid law, ordinance or
regulation; 6. when double jeopardy is clearly apparent; 7. where the court has no
jurisdiction over the offense; 8. where it is a case of persecution rather than prosecution;
9. where the charges are manifestly false and motivated by the lust for vengeance; 10.
when there is clearly no prima facie case against the accused and a motion to quash on
that ground has been denied.

Criminal Law; Investment Contracts; Pyramid Scam; When the investor is relatively
uninformed and turns over his money to others, essentially depending upon their
representations and their honesty and skill in managing it, the transaction generally is
considered to be an investment contract.—The transaction initiated by Santos with Sy
and Lorenzo, respectively, is an investment contract or participation in a profit sharing
agreement that falls within the definition of the law. When the investor is relatively
uninformed and turns over his money to others, essentially depending upon their
representations and their honesty and skill in managing it, the transaction generally is
considered to be an investment contract. The touchstone is the presence of an
investment in a common venture premised on a reasonable expectation of profits to be
derived from the entrepreneurial or managerial efforts of others.  Secuirties and
Exchange Commission vs. Santos, 719 SCRA 514, G.R. No. 195542 March 19, 2014
G.R. Nos. 209655-60, January 14, 2015

PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. PALMY TIBAYAN AND RICO Z.

PUERTO, Accused-Appellants.
Criminal Law; Estafa; Estafa by Means of Deceit; Elements of.—The elements of estafa
by means of deceit under this provision are the following: (a) that there must be a false
pretense or fraudulent representation as to his power, influence, qualifications, property,
credit, agency, business or imaginary transactions; (b) that such false pretense or
fraudulent representation was made or executed prior to or simultaneously with the
commission of the fraud; (c) that the offended party relied on the false pretense,
fraudulent act, or fraudulent means and was induced to part with his money or property;
and (d) that, as a result thereof, the offended party suffered damage.

Same; Same; Syndicated Estafa; Elements of.—Thus, the elements of Syndicated

Estafa are: (a) estafa or other forms of swindling, as defined in Articles 315 and 316 of
the RPC, is committed; (b) the Estafa or swindling is committed by a syndicate of five
(5) or more persons; and (c) defraudation results in the misappropriation of moneys
contributed by stockholders, or members of rural banks, cooperative, “samahang
nayon(s),” or farmers’ associations, or of funds solicited by corporations/associations
from the general public.

Same; Same; Ponzi Scheme; Words and Phrases; A Ponzi scheme is a type of
investment fraud that involves the payment of purported returns to existing investors
from funds contributed by new investors.—To be sure, a Ponzi scheme is a type of
investment fraud that involves the payment of purported returns to existing investors
from funds contributed by new investors. Its organizers often solicit new investors by
promising to invest funds in opportunities claimed to generate high returns with little or
no risk. In many Ponzi schemes, the perpetrators focus on attracting new money to
make promised payments to earlier-stage investors to create the false appearance that
investors are profiting from a legitimate business. It is not an investment strategy but a
gullibility scheme, which works only as long as there is an ever increasing number of
new investors joining the scheme. It is difficult to sustain the scheme over a long period
of time because the operator needs an ever larger pool of later investors to continue
paying the promised profits to early investors. The idea behind this type of swindle is
that the “con-man” collects his money from his second or third round of investors and
then absconds before anyone else shows up to collect. Necessarily, Ponzi schemes
only last weeks, or months at the most.

G.R. No. 220458

PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee

vs.
ROSARIO BALADJAY, Accused-Appellant

Criminal Law; Estafa; Estafa by Means of Deceit; Elements of.—Jurisprudence

elucidates that the elements of Estafa by means of deceit under this provision are as
follows: (a) that there must be a false pretense or fraudulent representation as to the
offender’s power, influence, qualifications, property, credit, agency, business or
imaginary transactions; (b) that such false pretense or fraudulent representation was
made or executed prior to or simultaneously with the commission of the fraud; (c) that
the offended party relied on the false pretense, fraudulent act, or fraudulent means and
was induced to part with his money or property; and (d) that, as a result thereof, the
offended party suffered damage.

Same; Same; Syndicated Estafa; Elements of.—The elements of Syndicated Estafa,

therefore, are as follows: (a) Estafa or other forms of swindling, as defined in Articles
315 and 316 of the RPC, is committed; (b) the Estafa or swindling is committed by a
syndicate of five (5) or more persons; and (c) the defraudation results in the
misappropriation of moneys contributed by stockholders, or members of rural banks,
cooperatives, “samahang nayon(s),” or farmers’ associations, or of funds solicited by
corporations/associations from the general public.

Same; Same; Same; Fraud; Deceit; The gravamen of the offenses charged in all the
aforementioned cases is the employment of fraud or deceit to the damage or prejudice
of another.—The gravamen of the offenses charged in all the aforementioned cases is
the employment of fraud or deceit to the damage or prejudice of another. As defined in
People v. Balasa, 295 SCRA 49 (1998):  Fraud, in its general sense, is deemed to
comprise anything calculated to deceive, including all acts, omissions, and concealment
involving a breach of legal or equitable duty, trust, or confidence justly reposed,
resulting in damage to another, or by which an undue and unconsci entious advantage
is taken of another. It is a generic term embracing all multifarious means which human
ingenuity can device, and which are resorted to by one individual to secure an
advantage over another by false suggestions or by suppression of truth and includes all
surprise, trick, cunning, dissembling and any unfair way by which another is cheated.
On the other hand, deceit is the false representation of a matter of fact whether by
words or conduct, by false or misleading allegations, or by concealment of that which
should have been disclosed which deceives or is intended to deceive another so that he
shall act upon it to his legal injury.

Same; Same; Same; The crime of Estafa under Article 315(2)(a) of the Revised Penal
Code (RPC) was committed by accused-appellant together with her counselors,
numbering more than five (5), qualifying the crime to Syndicated Estafa in accordance
with Presidential Decree (PD) No. 1689.—The crime of Estafa under Article 315(2)(a) of
the RPC was committed by accused-appellant together with her counselors, numbering
more than five (5), qualifying the crime to Syndicated Estafa in accordance with PD
1689. Thus, the imposition of the penalty of life imprisonment should be upheld, as well
as the order to pay the actual damages suffered by each of the private complainants. In
addition thereto, the Court imposes interest on the monetary penalty at the rate of six
percent (6%) per annum from the time of the demand, which shall be deemed as made
on the same day the Information was filed against accused-appellant, until the amounts
are fully paid.