see - sc.judiciary.gov.ph/jurisprudence/2013/february2013/187919.pdf
"x x x.
Our Ruling
We already emphasized in the 25 April 2012 Decision that “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.”9
Our Decision meticulously discussed how we found probable cause, a finding affirming that of the prosecutor and the Court of Appeals, to indict
petitioners for the crime of estafa under Article 315 (2)(a) of the Revised
Penal Code.10 We noted there and we now reiterate that it was neither the
petitioners’ act of borrowing money and not paying it, nor their denial thereof, but their very act of deceiving AUB in order for the latter to part
with its money that is sought to be penalized. Thus:
x x x 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.’11
Under Article 315 (2)(a) of the Revised Penal Code, estafa is committed by any person who shall defraud another by, among others, false pretenses or fraudulent acts executed prior to or simultaneous with the commission of fraud, i.e., by using a fictitious name, falsely pretending to possess power, influence, qualifications, property, credit, agency, business or imaginary transactions; or by means of other similar deceits.
Underscoring the aforesaid discussion, we found that: 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
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. [Citation omitted]
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.’s transaction 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.
x x x x
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. x x x.
x x x x
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. [Citation omitted]
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 [been] for this false representation, AUB would [not] have 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.
hich,
including this controversy, amounted to hundreds of millions of pesos.12
(Emphasis supplied)
We revisit, however, our ruling as to the second issue, i.e., whether or
not the petitioners may be charged and tried for syndicated estafa under
Presidential Decree No. 1689.
Section 1 of Presidential Decree No. 1689 provides:
Section 1. Any person or persons who shall commit estafa or other forms of swindling as defined in Article 315 and 316 of the Revised Penal Code, as amended, shall be punished by life imprisonment to death if the swindling (estafa) is committed by a syndicate consisting of five or more persons formed with the intention of carrying out the unlawful or illegal
act, transaction, enterprise or scheme, and the 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.
When not committed by a syndicate as above defined, the penalty
imposable shall be reclusion temporal to reclusion perpetua if the amount
of the fraud exceeds 100,000 pesos.
Thus, the elements of syndicated estafa are: (a) estafa or other forms
of swindling as defined in Article 315 and 316 of the Revised Penal Code is committed; (b) the estafa or swindling is committed by a syndicate of five or more persons; 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.
On review of the cases applying the law, we note that the swindling
syndicate used the association that they manage to defraud the general public of funds contributed to the association. Indeed, Section 1 of Presidential Decree No. 1689 speaks of a syndicate formed with the intention of carrying out the unlawful scheme for the misappropriation of the money contributed by the members of the association. In other words, only those who formed and manage associations that receive contributions from the general public who misappropriated the contributions can commit syndicated estafa.
Gilbert Guy, et al., however, are not in any way related either by
employment or ownership to AUB. They are outsiders who, by their
cunning moves were able to defraud an association, which is the AUB.
Theirs would have been a different story, had they been managers or owners of AUB who used the bank to defraud the public depositors.
This brings to fore the difference between the case of Gilbert Guy et
al., and that of People v. Balasa, People v. Romero, and People v. Menil, Jr.
In People v. Balasa, the accused formed the Panata Foundation of the
Philippines, Inc., a non-stock/non-profit corporation and the accused
managed its affairs, solicited deposits from the public and misappropriated
the same funds.
We clarified in Balasa that although, the entity involved, the Panata
Foundation, was not a rural bank, cooperative, samahang nayon or farmers’ association, it being a corporation, does not take the case out of the coverage of Presidential Decree No. 1689. Presidential Decree No. 1689’s third “whereas clause” states that it also applies to other
“corporations/associations operating on funds solicited from the general
public.” It is this pronouncement about the coverage of “corporations/associations” that led us to the ruling in our 25 April 2012
Decision that a commercial bank falls within the coverage of Presidential
Decree No. 1689. We have to note though, as we do now, that the Balasa
case, differs from the present petition because while in Balasa, the offenders were insiders, i.e., owners and employees who used their position to defraud the public, in the present petition, the offenders were not at all related to the bank. In other words, while in Balasa the offenders used the corporation as the means to defraud the public, in the present case, the corporation or the bank is the very victim of the offenders.
Balasa has been reiterated in People v. Romero, where the accused Martin Romero and Ernesto Rodriguez were the General Manager and
Operation Manager, respectively, of Surigao San Andres Industrial
Development Corporation, a corporation engaged in marketing which later
engaged in soliciting funds and investments from the public.
A similar reiteration was by People v. Menil, Jr., where the accused
Vicente Menil, Jr. and his wife were proprietors of a business operating
under the name ABM Appliance and Upholstery. Through ushers and sales
executives, the accused solicited investments from the general public and
thereafter, misappropriated the same.
The rulings in Romero and Menil, Jr. further guide us in the present
case. Notably, Romero and Menil, Jr. applied the second paragraph of
Section 1 of Presidential Decree No. 1689 because the number of the
accused was below five, the minimum needed to form the syndicate.
The second paragraph, Section 1 of Presidential Decree No. 1689
states:
When not committed by a syndicate as above defined, the penalty
imposable shall be reclusion temporal to reclusion perpetua if the amount
of fraud exceeds 100,000 pesos.
Effectively, Romero and Menil, Jr. read as written the phrase “when
not committed by a syndicate as above defined,” such that, for the second paragraph of Section 1 to apply the definition of swindling in the first
paragraph must be satisfied: the offenders should have used the association they formed, own or manage to misappropriate the funds solicited from the public.
x x x."
