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This controversy could have been just a simple case for collection of sum of money had it not been for the sophisticated fraudulent scheme which Gilbert Guy, et al.employed in inducing AUB to part with its money.
Records show that on 17 February 1995, Radio Marine Network, Inc. (Radio Marine) amended its corporate name to what it stands today – Radio Marine Network(Smartnet), Inc. This was a month after organizing its subsidiary corporation theSmartnet Philippines, Inc. with a capital of only P62,500.00. A year earlier, Gilbert Guy, et al., established Smartnet Philippines as a division of Radio Marine under which RMSI operated its business.
It was, however, only on 26 March 1998, when the Securities and Exchange Commission approved the amended corporate name, and only in October 1999 did RMSI register Smartnet Philippines as its business name with the Department of Trade and Industry.
It is in this milieu that RMSI transacted business with AUB under the name Smartnet Philippines and/or SPI.
Article 315 (2) (a) of the Revised Penal Code provides:
Art. 315. Swindling (estafa) – any person who shall defraud another by any of the means mentioned herein below x x x :
x x x x
2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneous with the commission of the fraud:
(a)By using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions; or by means of other similar deceits. x x x.
The elements of estafa by means of deceit are the following:
a.That there must be a false pretense, fraudulent act or fraudulent means;
b.That such false pretense, fraudulent act or fraudulent means must be made or executed prior to or simultaneously with the commission of the fraud;
c.That the offended party must have relied on the false pretense, fraudulent act, or fraudulent means, that is, he was induced to part with his money or property because of the false pretense, fraudulent act, or fraudulent means;
d.That as a result thereof, the offended party suffered damage.
First, Gilbert Guy, Philip Leung, Katherine Guy, Rafael Galvez and Eugene Galvez, Jr., interlocking directors of RMSI and SPI, represented to AUB in their transactions that Smartnet Philippines and SPI were one and the same entity. While Eugene Galvez, Jr. was not a director of SPI, he actively dealt with AUB in his capacity as RMSI’s Chief Financial Officer/Comptroller by falsely representing that SPI and RMSI were the same entity. Gilbert Guy, Philip Leung, Katherine Guy, Rafael Galvez, and Eugene Galvez, Jr. used the business names Smartnet Philippines, RMSI, and SPI interchangeably and without any distinction. They successfully did this by using the confusing similarity of RMSI’s business name, i.e., Smartnet Philippines – its division, and, Smartnet Philippines, Inc. – the subsidiary corporation. Further, they were able to hide the identity of SPI, by having almost the same directors as that of RMSI. In order to let it appear that SPI is the same as that of Smartnet Philippines, they submitted in their application documents of RMSI, including its Amended Articles of Incorporation,third-party real estate mortgage of Goodland Company in favor of Smartnet Philippines, and audited annual financial statement of SGV & Co. Gilbert Guy, et al.also used RMSI letterhead in their official communications with the bank and the contents of these official communications conclusively pointed to RMSI as the one which transacted with the bank.
These circumstances are all indicia of deceit. 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.
Second, the intent to deceive AUB was manifest from the start. Gilbert Guy et al.laid down first all the necessary materials they need for this deception before defrauding the bank by first establishing Smartnet Philippines as a division of Radio Marine under which Radio Marine Network Inc. operated its business. Then it organized a subsidiary corporation, the SPI, with a capital of only P62,000.00. Later, it changed the corporate name of Radio Marine Network Inc. into RMSI.
Undoubtedly, deceit here was conceived in relation to Gilbert Guy, et al.’stransaction with AUB. There was a plan, documented in corporation’s papers, that led to the defraudation of the bank. The circumstances of the directors’ and officers’ acts in inserting in Radio Marine the name of Smartnet; the creation of its division – Smartnet Philippines; and its registration as business name as Smartnet Philippines with the Department of Trade and Industry, together with the incorporation of its subsidiary, the SPI, are indicia of a pre-conceived scheme to create this elaborate fraud, victimizing a banking institution, which perhaps, is the first of a kind in Philippine business.
We emphasize that fraud in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal duty 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.
As early as 1903, in U.S. v. Mendezona, we held that an accused may be convicted for estafa if the deceit of false pretense is committed prior to or simultaneous with fraud and is the efficient cause or primary consideration which induced the offended party to part with his money or property.
Third, AUB would not have granted the Irrevocable Letter of Credit No. 990361, among others, had it known that SPI which had only P62,500.00 paid-up capital and no assets, is a separate entity and not the division or business name of RMSI. Gilbert Guy, et al. however, contends that the transaction subject in this controversy is a letter of credit and not a loan, hence, SPI’s capital does not matter. This was also the contention of the DOJ in reversing the Resolution of the City Prosecutor’s Office of Pasig. The DOJ contended that:
It is also noted that the subject transaction, one of the several series of transactions between complainant AUB and SPI, is not a loan transaction. It is a letter of credit transaction intended to facilitate the importation of goods by SPI. The allegation as to the lack of capitalization of SPI is therefore immaterial and irrelevant since it is a letter of credit transaction. The seller gets paid only if it delivers the documents of title over the goods to the bank which issued the letter of credit, while the buyer/importer acquires title to the goods once it reimburses the issuing bank. The transaction secures the obligation of the buyer/importer to the issuing bank. 
It is true that ordinarily, in a letter of credit transaction, the bank merely substitutes its own promise to pay for the promise to pay of one of its customers, who in turn promises to pay the bank the amount of funds mentioned in the letters of credit plus credit or commitments fees mutually agreed upon. Once the issuing bank shall have paid the beneficiary after the latter’s compliance with the terms of the letter of credit, the issuing bank is entitled to reimbursement for the amount it paid under the letter of credit.
In the present case, however, no reimbursement was made outright, precisely because the letter of credit was secured by a promissory note executed by SPI. The bank would have not agreed to this transaction had it not been deceived by Gilbert Guy, et al.into believing the RMSI and SPI were one and the same entity. Guy and his cohorts’ acts in (1) securing the letter of credit guaranteed by a promissory note in behalf of SPI; and, (2) their act of representing SPI as RMSI’s Division, were indicia of fraudulent acts because they fully well know, even before transacting with the bank, that: (a) SPI was a separate entity from Smartnet Philippines, the RMSI’s Division, which has the Omnibus Credit Line; and (b) despite this knowledge, they misrepresented to the bank that SPI is RMSI’s division. Had it not for this false representation, AUB would have not granted SPI’s letter of credit to be secured with a promissory note because SPI as a corporation has no credit line with AUB and SPI by its own, has no credit standing.
Fourth, it is not in dispute that the bank suffered damage, which, including this controversy, amounted to hundreds of millions of pesos.
It is worth emphasizing that under Section 1, Rule 112 of the Revised Rules on Criminal Procedure, the function of a preliminary investigation is to determine “whether there is a sufficient ground to engender a well-grounded belief that a crime x x x has been committed and that the respondent is probably guilty thereof and should be held for trial.”
A finding of probable cause needs only to rest on evidence showing that more likely than not, the accused committed the crime. Preliminary investigation is not the occasion for the full and exhaustive display of the parties' evidence. It is for the presentation of such evidence only as may engender a well-founded belief that an offense has been committed and that the accused is probably guilty thereof. The validity and merits of a party's accusation or defense, as well as admissibility of testimonies and evidence, are better ventilated during the trial proper.
We, therefore, sustain the findings of the CA and the City Prosecutor’s Resolution finding that probable cause exists against Gilbert Guy, et al. for the crime of estafa under Article 315 (2)(a) of the Revised Penal Code and that Gilbert Guy, et al. are probably guilty thereof and should be held for trial. AUB’s voluminous documents submitted to this Court overcome this difficulty and established that there is sufficient ground to engender a well-grounded belief that a crime has been committed and that the respondents are probably guilty thereof and should be held for trial.
Lest it be misunderstood, we reiterate that this Court’s finding of probable cause is grounded on fraud committed through deceit which surrounded Gilbert Guy, et al.transaction with AUB, thus, violating Article 315 (2) (a) of the Revised Penal Code; it is neither their act of borrowing money and not paying them, nor their denial thereof, but their very act of deceiving AUB in order for the latter to part with its money. As early as the Penal Code of Spain, which was enforced in the Philippines as early as 1887 until it was replaced by the Revised Penal Code in 1932, the act of fraud through false pretenses or similar deceit was already being punished. Article 335 of the Penal Code of Spain punished a person who defrauded another “by falsely pretending to possess any power, influence, qualification, property, credit, agency or business, or by means of similar deceit.”