Gabionza vs. Court of Appeals

Probable cause to charge corporate officers with estafa by deceit may rest on their agents’ false representations of financial capacity, imputable to the officers as principals by inducement under Article 17 of the Revised Penal Code even without direct dealings with the victims; postdated checks issued to the public in a recurring investment scheme may also constitute unregistered “securities” within the Revised Securities Act’s definition of commercial papers evidencing indebtedness. Whether the checks are ultimately securities and whether respondents are guilty are matters for trial, but the DOJ’s probable-cause determination must be respected absent grave abuse.

Petitioners Betty Gabionza and Isabelita Tan were individual investors who had previously placed monetary investments with the Bank of Southeast Asia. Private respondents Luke Roxas and Evelyn Nolasco were, respectively, the president and the senior vice president/treasurer of ASB Holdings, Inc. ASBHI, incorporated in 1996, had a declared primary purpose of investing in real and personal properties and securities, with an authorized capital stock of P500,000.00 and a paid-up capital of P125,000.00. The dispute required applying the probable-cause standard under the Revised Penal Code and Batas Pambansa Blg. 176, the Revised Securities Act, to an alleged public investment scheme later affected by the Securities Regulation Code of 2000.

Petitioners Betty Gabionza and Isabelita Tan had previously placed monetary investments with the Bank of Southeast Asia. Private respondents Luke Roxas and Evelyn Nolasco were the president and senior vice president/treasurer, respectively, of ASB Holdings, Inc., a corporation incorporated in 1996 with a declared primary purpose of investing in real and personal properties and securities. ASBHI’s articles of incorporation showed an authorized capital stock of P500,000.00 and a paid-up capital of P125,000.00.

Between 1996 and 1997, petitioners were convinced by ASBHI officers to lend or deposit money with the corporation. They and other investors were urged to lend, invest or deposit money and, in return, received checks from ASBHI for the amounts involved. Initially, receipts were issued in the name of “ASB Realty Development,” which they were told was the same entity as BSA or connected with it; beginning in March 1998, receipts were issued in the name of ASBHI, and they were told that ASBHI was exactly the same institution they had previously dealt with. ASBHI would issue two postdated checks to each lender, one representing principal and the other representing interest, drawn against DBS Bank and maturing in 30 to 45 days. On maturity, lenders renewed their loans either by collecting only the interest earnings or by rolling over the principal.

According to petitioners, they were enticed to extend loans by representations that ASBHI was engaged in the same activities as ASB Realty Corp., ASB Development Corp., and ASB Land, Inc., or held controlling interests in them; that ASB could legitimately solicit public funds for investment or borrowing; that ASB, by itself or through those corporations, owned real and personal properties supporting its borrowing program; that ASB was connected with and firmly backed by DBS Bank, in which Roxas held a substantial stake; and that ASB would pay the checks upon maturity because it had the necessary resources. In the first quarter of 2000, DBS Bank began refusing to pay the checks by virtue of “stop payment” orders from ASBHI. In May 2000, ASBHI filed a petition for rehabilitation and receivership with the Securities and Exchange Commission and obtained an order enjoining it from paying its outstanding liabilities.

The resulting complaints charged estafa under Article 315(2)(a) and 315(2)(d) of the Revised Penal Code, estafa under Presidential Decree No. 1689, violation of the Revised Securities Act, and violation of the General Banking Act. The DOJ Secretary found that ASBHI had represented itself as financially capable despite an authorized capital stock of only P500,000.00 and paid-up capital of only P125,000.00. The DOJ reasoned that no person in his proper frame of mind would lend millions to a business entity with such meager capitalization. The false representations by ASB agents were deemed imputable to Roxas and Nolasco because they directed operations and authorized or accepted the fraud-induced loans. Petitioners’ losses were P12,160,583.32 for Gabionza and P16,411,238.57 for Tan. Private respondents did not dispute that ASBHI had borrowed from about 700 individual investors amounting to close to P4 billion. The Court of Appeals decision and the dissent did not seriously dispute the occurrence of the facts as found by the DOJ; they disputed whether those facts made out a prima facie case against Roxas and Nolasco.

• Estafa by Deceit: Petitioners argued that they were induced to lend by false representations of ASBHI’s financial capacity and backing, despite an authorized capital stock of only P500,000.00 and paid-up capital of P125,000.00, and that they would not have invested millions had they known the true setup.
• Violation of the Revised Securities Act: Petitioners contended that ASBHI’s postdated checks, issued in lieu of debt instruments to about 700 investors, constituted unregistered securities or commercial papers evidencing indebtedness and circumvented the registration requirements of Batas Pambansa Blg. 176.
• Liability of Corporate Officers: Petitioners maintained that the false representations of ASB agents were imputable to Roxas and Nolasco, who, as president and senior vice president/treasurer in charge of operations, directed the agents and authorized or accepted the fraud-induced loans, making them liable as principals by inducement.

• No Deceit: Private respondents argued that the true capitalization of ASBHI had always been a matter of public record, reflected in documents obtainable from the SEC, and therefore could not support estafa by deceit.
• No Direct Dealing: Private respondents maintained that they never personally dealt with petitioners and that the agents or traders who allegedly made misrepresentations were never identified or impleaded.
• Checks Not Securities: They contended that checks are bills of exchange drawn on a bank and payable on demand, and that issuing checks to secure a corporate loan is a valid corporate act that does not require prior SEC registration.
• Effect of Repeal: Private respondents invoked the fact that the Revised Securities Act had already been repealed by the Securities Regulation Code of 2000 when the DOJ Resolution was issued.

• Estafa by Deceit: Whether the DOJ Resolution established probable cause that the crime of estafa by means of deceit under Article 315(2)(a) of the Revised Penal Code was committed against petitioners.
• Violation of the Revised Securities Act: Whether ASBHI’s postdated checks constitute “securities” whose sale or distribution required registration under Section 4 in relation to Section 56 of the Revised Securities Act.
• Liability of Corporate Officers: Whether probable cause existed to hold Roxas and Nolasco criminally liable as principals by inducement despite their lack of direct dealings with petitioners and the non-impleading of the agents or traders who made the representations.
• Effect of the Repeal of the Revised Securities Act: Whether the repeal of the Revised Securities Act by the Securities Regulation Code of 2000 bars prosecution for offenses committed before the repeal.

• Estafa by Deceit: Yes. The DOJ Resolution established a prima facie case of estafa under Article 315(2)(a); each element was sufficiently supported.
• Violation of the Revised Securities Act: Yes, as to probable cause. The postdated checks could fall within the statutory definition of securities as commercial papers evidencing indebtedness.
• Liability of Corporate Officers: Yes. Probable cause existed because inducement is as sufficient and effective as direct participation under Article 17 of the Revised Penal Code, and non-impleading of direct agents did not negate the proceeding.
• Effect of the Repeal of the Revised Securities Act: No. The Securities Regulation Code reenacted and continued to punish the same offense with the same penalty.

• Estafa by Deceit: The elements of estafa by means of deceit under Article 315(2)(a) are: a false pretense, fraudulent act or fraudulent means; such false pretense, fraudulent act or fraudulent means made or executed prior to or simultaneously with the commission of the fraud; reliance by the offended party who was induced to part with money or property; and resulting damage. The DOJ Resolution identified ASBHI’s false representation of financial capacity despite an authorized capital stock of only P500,000.00 and paid-up capital of P125,000.00, as well as the specific assurances about ASB’s business activities, assets, DBS backing, and ability to pay. These representations occurred before petitioners parted with their money. The DOJ reasonably concluded that no person would lend millions to an entity with such meager capitalization, establishing reliance and inducement. Damage was shown by losses of P12,160,583.32 for Gabionza and P16,411,238.57 for Tan, and respondents did not dispute that ASBHI borrowed close to P4 billion from about 700 investors. Temporary repayment did not negate the fraudulent inducement, because the material question was whether investors would have extended the loans at all had they known the true financial setup. Public SEC records did not defeat estafa, since there was no legal duty on the part of lenders to investigate creditworthiness and the corporation’s agents affirmatively represented its ability to pay. Sesbreno was distinguished: nonpayment of a money market placement generally gives rise to civil liability for estafa through misappropriation or conversion under Article 315(1)(b), but a borrower may be liable for estafa by deceit under Article 315(2)(a) when the loan was induced by false or fraudulent misrepresentations.

• Violation of the Revised Securities Act: Section 4 of Batas Pambansa Blg. 176 generally prohibited the sale or distribution of unregistered securities. Section 2 defined securities to include “commercial papers evidencing indebtedness of any person, financial or non-financial entity,” and a check is a commercial paper evidencing indebtedness. The DOJ Resolution found that ASBHI borrowed from about 700 investors on a recurring short-term basis, issued postdated checks as the evidence of indebtedness, and rolled over investments. In that scheme, the checks took on the attributes of securities rather than mere payment instruments. The Court of Appeals’ view that checks are bills of exchange and that issuing checks to secure corporate loans is valid was considered too narrow. Whether the checks ultimately qualify as securities could be debated, but the DOJ Resolution sufficiently established a prima facie case. The issue was best left to a full-blown trial. The repeal of the Revised Securities Act did not extinguish the offense because Republic Act No. 8799 continued to punish the same offense under Section 8 in relation to Section 73, with the same penalty as Section 56 of the old law and Section 73 of the new Code.

• Liability of Corporate Officers: The DOJ concluded that the agents’ false representations were imputable to Roxas and Nolasco because they were president and senior vice president/treasurer, were in charge of operations, directed the agents to make the false representations, and authorized or accepted the fraud-induced loans. Article 17 of the Revised Penal Code recognizes as principals those who directly force or induce others to commit the offense. Direct personal dealings were not required; inducement is as sufficient and effective as direct participation. The Court of Appeals pointed to no definitive evidence that respondents did not instruct the agents. The non-impleading or non-identification of the traders or agents was not fatal, because criminal liability is individual and a court may try those accused over whom it acquired jurisdiction. The absence of other participants may affect the evidence but does not negate probable cause. The Court also noted that ASBHI’s balance sheets booked over five billion pesos as “advances to stockholder,” while Roxas owned 124,996 of the 125,000 subscribed shares, supporting a reasonable inference that investor funds were channeled to him.

• Effect of the Repeal of the Revised Securities Act: The complained acts occurred during the effectivity of the Revised Securities Act. Under the doctrine recognized in Ong Chang Wing vs. U.S. and reaffirmed in Benedicto vs. Court of Appeals, absolute repeal does not bar punishment when the repealing act reenacts the former statute and punishes the same act. The Revised Securities Act and the Securities Regulation Code of 2000 prescribed the same penalty. Accordingly, the repeal did not extinguish criminal liability, and prosecution remained possible.

• Non-interference in preliminary investigations — Courts generally defer to the Department of Justice’s determination of probable cause and leave to the investigating prosecutor sufficient latitude of discretion. The Court applied this to conclude that the Court of Appeals erred in reversing the DOJ Resolution on weak grounds.

• Estafa by means of deceit; elements — Under Article 315(2)(a) of the Revised Penal Code, the elements are: a false pretense, fraudulent act or fraudulent means; execution prior to or simultaneous with the commission of the fraud; reliance by the offended party, who is induced to part with money or property; and resulting damage. The Court applied these elements to ASBHI’s false financial-capacity representations.

• Money market loan distinguished from estafa by deceit — Nonpayment of a money market placement generally gives rise to civil liability for estafa through misappropriation or conversion under Article 315(1)(b), but when the creditor was induced by false or fraudulent misrepresentations, the borrower may be liable for estafa by deceit under Article 315(2)(a). This distinction neutralized Sesbreno.

• Flexible definition of securities; commercial paper — Under Section 2 of the Revised Securities Act, securities include commercial papers evidencing indebtedness. Postdated checks issued in a public solicitation scheme and rolled over may take the attributes of securities, not mere payment instruments.

• Principal by inducement; corporate officer liability — Under Article 17 of the Revised Penal Code, principals include those who directly force or induce others to commit an offense. Direct dealing is not required; agents’ false representations may be imputed to officers who directed or authorized them. Non-joinder of agents is not fatal in criminal cases.

• Repeal by reenactment — Where a repealing statute reenacts the prior law and does not increase punishment, the right exists to punish the accused for offenses committed under the old law. Republic Act No. 8799 reenacted and penalized the same securities offense as the Revised Securities Act.

• "The material question is not whether ASBHI inspired exculpatory confidence in its investors by making good on its loans for a while, but whether such investors would have extended the loans in the first place had they known its true financial setup." — The passage isolates the controlling inquiry for estafa by deceit: whether the misrepresentation, not subsequent repayment, induced the investors to part with money.

• "To be clear, it is possible to hold the borrower in a money market placement liable for estafa if the creditor was induced to extend a loan upon the false or fraudulent misrepresentations of the borrower. Such estafa is one by means of deceit." — This is the ratio distinguishing Sesbreno and confirming that loan transactions may be criminal when fraud induces credit.

• "A check is a commercial paper evidencing indebtedness of any person, financial or non-financial entity. Since the checks in this case were generally rolled over to augment the creditor's existing investment with ASBHI, they most definitely take on the attributes of traditional stocks." — This states the Court’s application of the Revised Securities Act’s definition to the postdated checks in the ASBHI scheme.

• "to commit a crime, inducement is as sufficient and effective as direct participation." — Quoted from the DOJ Resolution; this phrase grounds the finding that officers need not have personally dealt with investors to be held liable as principals by inducement.

• Sesbreno vs. Court of Appeals, 310 Phil. 671 (1995) — Distinguished. It held that a money market placement generally creates civil liability for nonpayment under estafa through misappropriation or conversion under Article 315(1)(b), not estafa by deceit under Article 315(2)(a).

• Benedicto vs. Court of Appeals, 416 Phil. 722 (2001) — Followed. It established that an exception to the rule on repeal of penal laws exists where the repealing act reenacts the former statute and punishes the same act previously penalized under the old law.

• Ong Chang Wing vs. U.S., 40 Phil. 1046 (1910) — Cited as early authority that when the repealing act reenacts substantially the former law and does not increase punishment, the right remains to punish the accused for an offense committed before repeal.

• Aricheta vs. People, G.R. No. 172500, September 21, 2007 — Cited for the elements of estafa by deceit under Article 315(2)(a) of the Revised Penal Code, applied to the DOJ findings.

• Andres vs. Cuevas, G.R. No. 150869, June 9, 2005, 460 SCRA 38 — Cited for the policy of non-interference with the DOJ’s determination of probable cause in preliminary investigations.

• Article 315(2)(a), Revised Penal Code — Defines estafa by means of false pretenses or fraudulent acts executed prior to or simultaneous with the commission of the fraud. Applied to ASBHI’s false capitalization representations, which induced loans and caused loss.

• Article 17, Revised Penal Code — Defines principals to include those who directly force or induce others to commit an offense. Applied to make the corporate officers liable for their agents’ misrepresentations.

• Section 2, Batas Pambansa Blg. 176 (Revised Securities Act) — Defines “securities” to include commercial papers evidencing indebtedness of any person, financial or non-financial entity. This definition reached the postdated checks used in the ASBHI investment scheme.

• Section 4, Batas Pambansa Blg. 176 (Revised Securities Act) — Required registration of securities before their sale or distribution to the public. Applied to ASBHI’s unregistered public borrowing scheme.

• Section 56, Batas Pambansa Blg. 176; Section 8 in relation to Section 73, Republic Act No. 8799 (Securities Regulation Code) — Penal provisions prescribing the same penalty. The new Code continued to punish the same securities offense, so repeal did not bar prosecution.

Associate Justices Quisumbing (Chairperson), Carpio Morales, and Brion concurred.

• Velasco, Jr., J.: Maintained that no probable cause existed for estafa because petitioners never directly dealt with private respondents and the alleged agents were not identified or impleaded, rendering the fraud allegations mere theories. He also argued that ASBHI’s undercapitalization was immaterial because ASBHI formed part of the ASB Group of Companies, which financed real estate projects and previously met its obligations before suffering business reverses. He further contended that checks are not “securities” under the Revised Securities Act, as they are means of payment rather than evidences of indebtedness, and that the majority reading would set a dangerous precedent. He voted to dismiss the petition, citing Ledesma vs. Court of Appeals and Crespo vs. Mogul.