**Title: Gabionza and Tan v. Court of Appeals, et al.

–
Probable Cause in Complex Securities Fraud**
**Facts:**
Betty Go Gabionza and Isabelita Tan were convinced by ASB Holdings Inc. (ASBHI) officers, including
president Luke Roxas and senior vice president/treasurer Evelyn Nolasco, to lend money to ASBHI based
on assertions that it was a sound financial entity connected to their previous dealings with the Bank of
Southeast Asia. Gabionza and Tan, along with others, rolled over short-term loans with ASBHI, receiving
high-interest checks that were drawn on DBS Bank. However, from early 2000, these checks were
stopped, and ASBHI filed for rehabilitation with the Securities and Exchange Commission (SEC). Several
aggrieved investors, led by Gabionza and Tan, filed criminal complaints against ASBHI and its officers.
The Task Force on Financial Fraud at the Department of Justice (DOJ) initially dismissed the complaints,
ruling them as civil matters only. Upon a motion for reconsideration, the Secretary of Justice reversed this
and ordered filing charges of estafa under Article 315(2)(a) of the Revised Penal Code and violation of
the Revised Securities Act. This decision was challenged by Roxas and Nolasco through a certiorari
petition, resulting in the Court of Appeals dismissing the criminal charges against them, which led to
Gabionza and Tan elevating the matter to the Supreme Court.
**Issues:**
1. Whether the DOJ’s finding of probable cause for estafa against Roxas and Nolasco was valid despite
the lack of direct dealings or inducements by them to Gabionza and Tan.
2. Whether post-dated checks issued by ASBHI constituted securities under the Revised Securities Act,
necessitating SEC registration.
**Court’s Decision:**
The Supreme Court reversed the Court of Appeals decision:
1. **On Estafa Probable Cause:** – The Court reinstated the DOJ’s determination of probable cause for
estafa under Article 315(2)(a). It clarified that a prima facie case was established with reported
inducements and fraudulence—specifically, by misrepresenting ASBHI’s financial capability to extend a
creditworthy partnership. The prosecution can proceed against Roxas and Nolasco as principals by
inducement, even absent direct dealings or explicit fraudulent acts attributed G.R. No. 161057. September
12, 2008
2. **On the Securities Act Violation:** – The Court upheld DOJ’s view that the postdated checks issued
by ASBHI indeed assumed the character of securities under the Revised Securities Act. The scheme
effectively circumvented the registration required by law intended to protect investors, as these checks
embodied a regular investment tool used for acquiring significant capital on a mass public scale, affecting
over 700 investors with nearly 4 billion in purported “short-term loans.”
**Doctrine:** *Fraudulent inducements inducing financial transactions may be imputed to top corporate
officers if such inducements stem from corporate misrepresentations, regardless of direct personal
transactions. Additionally, securities definitions under Philippine law can extend to unconventional
financial instruments utilized in wide-reaching deception schemes.* **Class Notes:** – **Estafa (Article
315(2)(a), RPC):** Consists of (1) deceit, (2) false or fraudulent representations made before or
simultaneously with the fraud, (3) reliance inducing monetary loss, and (4) resulting damage. –
**Securities (Revised Securities Act):** Extends beyond traditional instruments if their issuance
constitutes an investment tool widely affecting public interest.
**Historical Background:** This case emerged during the financial instability of the late 1990s and early
2000s, marked by economic crises that affected many financial entities. ASBHI was involved in the
aggressive solicitation of large public investment, reflective of systemic, albeit sometimes unlawful,
practices that exploited regulatory gaps in securities oversight. It underscored the challenges faced in
distinguishing civil debt obligations from criminal fraud amid such economic environments. The
subsequent legal struggle highlighted significant legal doctrines on corporate fraud and securities
regulation, reinforcing investor protection despite evolving financial machinations
TIMESHARE REALTY CORPORATION vs. LAO G.R. No. 158941. February 11, 2017

FACTS:

The petitioner herein sold to respondents, one timeshare of Laguna de Boracay without first seeking
authority to sell securities, like timeshares from the Securities and Exchange Commission. Petitioners
registered the said securities to SEC but the Registration Statement became effective only on February 11,
1998, the date after the sale was made. Without such registration of the securities, petitioners cannot sell
the same.
Thus, respondent demand rescission of their contract and demand refund of their payment but the
petitioner failed to do so.
Petitioner argues on the other hand, that upon their registration with SEC as a corporation it already
possesses the required license or authority to sell securities like timeshares. Further, petitioner also claims
that their registration as broker securities, which the SEC approved, ratifies the prior transaction it had
with the respondents and thus negates the latter’s right or option to rescind the sale.

ISSUE:
Whether registration as a Corporation authorizes the Corporation to sell unregistered timeshares.

RULING:
No. The Court held by referring to the provisions of BP Blg. 178 which does not support the contention
that mere registration as a corporation already authorizes it to deal with unregistered timeshares. Its
registration as a corporation is just one of several requirements before it may have allowed selling
timeshares.
Section 4(a) of BP Blg. 178 provides that no securities shall be sold or offered for sale or distribution to
the public within the Philippines unless such securities shall have been registered and permitted to be
sold. There are also securities that are exempted from the registration requirement as provided in other
provisions of BP Blg. 178. But for those securities that are required to be registered, like the timeshares in
this instant case, Section 8 of BP Blg. 178 provides for the procedure of registration of securities intended
to be sold or offered for sale or distribution. The procedure requires the filing of a sworn registration
statement with respect to such securities by the issuer or by any dealer or underwriter interested in the
sale thereof, in the office of SEC, containing or attaching a copy of its articles of incorporation with all
amendments thereof and its existing by-laws or instruments corresponding thereto, whatever the name, if
the issuer be a corporation. Without complying with such procedures, the corporation is absolutely
proscribed from dealing with unregistered timeshares.
In this case, the sale of timeshares by the petitioner was made prior to the effectivity of the registration of
such securities. The petitioner is then without authority and license to effect such sale.
xxx
Personal Note: A corporation has powers conferred to it by law, its Articles of Incorporation, those
implied from express powers, and those that are necessary or incidental to the exercise of the powers so
conferred. It has the power to sell or dispose of its real or personal property. But the powers it possesses
are not absolute, it is limited. The acts contrary or inconsistent to those only conferred are considered
ultra vires, which may cause its transactions to be voidable. In this instance, the sale is limited by another
law requiring certain procedures and regulations to be followed and observed before effecting such sale.
Their power to sell is not absolute for it is limited by a law imposing some conditions.
NICOLAS VS. CA DIGEST
[G.R. No. 122857. March 27, 1998]
ROY NICOLAS, petitioner, vs. THE HONORABLE COURT OF APPEALS (Sixth Division) and
BLESILO F.B. BUAN, respondents.
FACTS: On February 19, 1987, petitioner Roy Nicolas and private respondent Blesito Buan entered into
a Portfolio Management Agreement, wherein the former was to manage the stock transactions of the latter
for a period of three months with an automatic renewal clause. However, upon the initiative of the private
respondent the agreement was terminated on August 19, 1987, and thereafter he requested for an
accounting of all transactions made by the petitioner. Three weeks after the termination of the agreement,
petitioner demanded from the private respondent the amount of P68,263.67 representing his alleged
management fees covering the periods of June 30, July 31 and August 19, 1987 as provided for in the
Portfolio Management Agreement. But the demands went unheeded, much to the chagrin of the
petitioner.
Rebuffed, petitioner filed a complaint for collection of sum of money against the private respondent
before the trial court. In his answer, private respondent contended that petitioner mismanaged his
transactions resulting in losses, thus, he was not entitled to any management fees.
ISSUE: Whether or not the broker may sell securities in the absence of registration or license from the
SEC.
HELD: Petitioner has not proven the amounts indicated adequately. His testimony explaining the bases
for the management fees demanded by him are nothing more than a self-serving exercise which lacks
probative value. There were no credible documentary evidence (e.g. receipts of the transactions, order
ticket, certificate of deposit; whether the stock certificates were deposited in a bank or professional
custodian, and others) to support his claim that profits were indeed realized. At best, his assertions are
founded on mere inferences and generalities. There must be more convincing proof which in this case is
wanting.
To our mind, petitioner’s complaint is similar to an action for damages, wherein the general rule is that for
the same to be recoverable it must not only be capable of proof but must actually be proved with a
reasonable degree of certainty, and courts, in making the awards, must posit specific facts which could
afford sufficient basis for measuring compensatory or actual damages. Since petitioner could not present
any credible evidence to substantiate his claims, the Court of Appeals was correct in ordering the
dismissal of his complaint.
The futility of petitioner’s action became more pronounced by the fact that he traded securities for the
account of others without the necessary license from the Securities and Exchange Commission
(SEC). Clearly, such omission was in violation of Section 19 of the Revised Securities Act which
provides that no broker shall sell any securities unless he is registered with the SEC. The purpose of the
statute requiring the registration of brokers selling securities and the filing of data regarding securities
which they propose to sell, is to protect the public and strengthen the securities mechanism.
American jurisprudence emphasizes the principle that:
“x x x, an unlicensed person may not recover compensation for services as a broker where a statute or
ordinance requiring a license is applicable and such statute or ordinance is of a regulatory nature, was
enacted in the exercise of the police power for the purpose of protecting the public, requires a license as
evidence of qualification and fitness, and expressly precludes an unlicensed person from recovering
compensation by suit, or at least manifests an intent to prohibit and render unlawful the transaction of
business by an unlicensed person.”
We see no reason not to apply the same rule in our jurisdiction. Stock market trading, a technical and
highly specialized institution in the Philippines, must be entrusted to individuals with proven integrity,
competence and knowledge, who have due regard to the requirements of the law.
WHEREFORE, in view of the foregoing, the assailed decision of the Court of Appeals dated August 16,
1995 as well as the Resolution dated November 29, 1995 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
Abacus Securities Corporation v. Ruben Ampil - G.R. No. 160016 February 27, 2006FACTS:
Evidence adduced by the [petitioner] has established the fact that [petitioner] is engaged in business as a
broker and dealer of securities of listed companies at the Philippine Stock Exchange Center. Sometime in
April 1997, respondent opened a cash or regular account with petitioner for the purpose of buying and
selling securities as evidenced by the Account Application Form. Since April 10, 1997, respondent
actively traded his account, and as a result of such trading activities, he accumulated an outstanding
obligation in favor of petitioner in the principal sum of ₱ 6,617,036.22. Despite the lapse of the period
within which to pay his account as well as sufficient time given by petitioner for respondent to comply
with his proposal to settle his account, the latter failed to do so. Such that petitioner thereafter sold
respondent’s securities to set off against his unsettled obligations. After the sale of respondent’s securities
and application of the proceeds thereof against his account, respondent’s remaining unsettled obligation to
petitioner was ₱3,364,313.56. Despite said demand and the lapse of said requested extension, respondent
failed and/or refused to pay his accountabilities to petitioner.
ISSUE:
Is Pari Delicto Rule applicable in the case?
RULING:
Yes. The law places the burden of compliance with margin requirements primarily upon the brokers and
dealers. Sections 23 and 25 and Rule 25-1, otherwise known as the mandatory close-out rule, clearly vest
upon petitioner the obligation, not just the right, to cancel or otherwise liquidate a customer’s order, if
payment is not received
within three days from the date of purchase. The word "shall" as opposed to the word "may," is
imperative and operates to impose a duty, which may be legally enforced. For transactions subsequent to
an unpaid order, the broker should require its customer to deposit funds into the account sufficient to
cover each purchase transaction prior to its execution. These duties are imposed upon the broker to ensure
faithful compliance with the margin requirements of the law, which forbids a broker from extending
undue credit to a customer. It will be noted that trading on credit (or "margin trading") allows investors to
buy more securities than their cash position would normally allow. Investors pay only a portion of the
purchase price of the securities; their broker advances for them the balance of the purchase price and
keeps the securities as collateral for the advance or