ABACUS
SECURITIES G.R.
No. 160016
CORPORATION,
Petitioner, Present:
Panganiban, CJ,
Chairman,
Ynares-Santiago,
- versus - Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ
Promulgated:
RUBEN U. AMPIL,
Respondent. February
27, 2006
x -- -- -- -- --
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PANGANIBAN, CJ:
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S |
tock market transactions affect the general public and the national
economy. The rise and fall of stock market
indices reflect to a considerable degree the state of the economy. Trends in stock
prices tend to herald changes in business conditions. Consequently, securities transactions
are impressed with public interest, and are thus subject to public regulation.
In particular, the laws
and regulations requiring payment of traded
shares within specified periods are meant to protect the economy from excessive
stock market speculations, and are thus mandatory.
In the present case, respondent cannot
escape payment of stocks validly traded by petitioner on his behalf. These transactions took place before both
parties violated the trading law and rules.
Hence, they fall outside the purview of the pari delicto rule.
Before the Court is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the March 21, 2003 Decision[2] and the September 19, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 68273. The assailed Decision disposed as follows:
“UPON THE VIEW WE
TAKE OF THIS CASE THUS, this appeal is hereby DISMISSED. With costs.”[4]
The CA denied
reconsideration in its
The
Facts
The factual antecedents were summarized by the trial court (and reproduced
by the CA in its assailed Decision) in this wise:
“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.
The parties’ business relationship was governed by the terms and
conditions [stated therein] x x x.
“Since P6,617,036.22 as of
“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 P3,364,313.56. [Petitioner]
then referred the matter to its legal counsel for collection purposes.
“In a letter dated August 15, 1997, [petitioner] through
counsel demanded that [respondent] settle his obligation plus the agreed
penalty charges accruing thereon equivalent to the average 90-day Treasury Bill
rate plus 2% per annum (200 basis points).
“In a letter dated August [26], 1997, [respondent]
acknowledged receipt of [petitioner’s] demand [letter] and admitted his unpaid
obligation and at the same time request[ed] for 60 days to raise funds to pay
the same, which was granted by [petitioner].
“Despite said demand and the lapse of said requested
extension, [respondent] failed and/or refused to pay his accountabilities to
[petitioner].
“For his defense, [respondent] claims that he was induced to
trade in a stock security with [petitioner] because the latter allowed offset
settlements wherein he is not obliged to pay the purchase price. Rather, it waits for the customer to
sell. And if there is a loss,
[petitioner] only requires the payment of the deficiency (i.e., the difference
between the higher buying price and the lower selling price). In addition, it charges a commission for
brokering the sale.
“However, if the customer sells and there is a profit,
[petitioner] deducts the purchase price and delivers only the surplus – after
charging its commission.
“[Respondent] further claims that all his trades with
[petitioner] were not paid in full in cash at anytime after purchase or within
the T+4 [4 days subsequent to trading] and none of these trades was cancelled
by [petitioner] as required in Exhibit ‘A-1’.
Neither did [petitioner] apply with either the Philippine Stock Exchange
or the SEC for an extension of time for the payment or settlement of his cash
purchases. This was not brought to his
attention by his broker and so with the requirement of collaterals in margin
account. Thus, his trade under an offset
transaction with [petitioner] is unlimited subject only to the discretion of
the broker. x x x [Had petitioner]
followed the provision under par. 8 of Exh. ‘A-1’ which stipulated the
liquidation within the T+3 [3 days subsequent to trading], his net deficit
would only be P1,601,369.59.
[Respondent] however affirmed that this is not in accordance with RSA
[Rule 25-1 par. C, which mandates that if you do not pay for the first] order,
you cannot subsequently make any further order without depositing the cash
price in full. So, if RSA Rule 25-1,
par. C, was applied, he was limited only to the first transaction. That [petitioner] did not comply with the T+4
mandated in cash transaction. When
[respondent] failed to comply with the T+3, [petitioner] did not require him to
put up a deposit before it executed its subsequent orders. [Petitioner] did not
likewise apply for extension of the T+4 rule.
Because of the offset transaction, [respondent] was induced to [take a]
risk which resulted [in] the filing of the instant suit against him [because of
which] he suffered sleepless nights, lost appetite which if quantified in
money, would amount to P500,000.00 moral damages and P100,000.00
exemplary damages.”[5]
In its
Decision[6] dated June 26, 2000, the Regional Trial Court (RTC) of Makati City (Branch
57) held that petitioner violated Sections 23 and 25 of the Revised Securities
Act (RSA) and Rule 25-1 of the Rules Implementing the Act (RSA Rules) when it
failed to: 1) require the respondent to
pay for his stock purchases within three (T+3) or four days (T+4) from trading;
and 2) request from the appropriate authority an extension of time for the
payment of respondent’s cash purchases.
The trial court noted that despite respondent’s non-payment within the
required period, petitioner did not cancel the purchases of respondent. Neither did it require him to deposit cash
payments before it executed the buy and/or sell orders subsequent to the first
unsettled transaction. According to the
RTC, by allowing respondent to trade his account actively without cash,
petitioner effectively induced him to purchase securities thereby incurring
excessive credits.
The trial court also found respondent to be equally at fault, by incurring
excessive credits and waiting to see how his investments turned out before deciding
to invoke the RSA. Thus, the RTC concluded
that petitioner and respondent were in pari
delicto and therefore without recourse against each other.
The CA upheld
the lower court’s finding that the parties were in pari delicto. It
castigated petitioner for allowing respondent to keep on
trading despite the latter’s failure to pay his outstanding obligations. It explained that “the reason [behind
petitioner’s act] is elemental in its simplicity. And it is not exactly altruistic. Because whether [respondent’s] trading
transaction would result in a surplus or deficit, he would still be liable to
pay [petitioner] its commission. [Petitioner’s]
cash register will keep on ringing to the sound of incoming money, no matter
what happened to [respondent].”[7]
The CA debunked petitioner’s contention that the trial court lacked
jurisdiction to determine violations of the RSA. The court a
quo held that petitioner was estopped from raising the question, because it
had actively and voluntarily participated in the assailed proceedings.
Hence, this Petition.[8]
Petitioner submits the following
issues for our consideration:
“I.
Whether or not the Court of Appeal’s ruling that petitioner and respondent are in pari delicto which allegedly bars any recovery, is in accord with law and applicable jurisprudence considering that respondent was the first one who violated the terms of the Account Opening Form, [which was the] agreement between the parties.
“II.
Whether or not the Court of Appeal’s ruling that the petitioner and respondent are in pari delicto is in accord with law and applicable jurisprudence considering the Account Opening Form is a valid agreement.
“III.
Whether or not the Court of Appeal’s ruling that petitioner cannot recover from respondent is in accord with law and applicable jurisprudence since the evidence and admission of respondent proves that he is liable to petitioner for his outstanding obligations arising from the stock trading through petitioner.
“IV.
Whether or not the Court of Appeal’s ruling on petitioner’s alleged violation of the Revised Securities Act [is] in accord with law and jurisprudence since the lower court has no jurisdiction over violations of the Revised Securities Act.”[9]
Briefly, the issues are (1) whether
the pari delicto rule is applicable in
the present case, and (2) whether the trial court had jurisdiction over the
case.
The Petition is partly
meritorious.
Main Issue:
Applicability of the
Pari Delicto Principle
In the present
controversy, the following pertinent facts are undisputed: (1) on April 8, 1997, respondent opened a cash account with petitioner for his
transactions in securities;[10] (2) respondent’s purchases were consistently
unpaid from April 10 to 30, 1997;[11]
(3) respondent failed to pay in full, or even just his deficiency,[12]
for the transactions on April 10 and 11, 1997;[13]
(4) despite respondent’s failure to cover his initial deficiency, petitioner subsequently
purchased and sold securities for respondent’s account on April 25 and 29;[14]
(5) petitioner did not cancel or liquidate a substantial amount of respondent’s
stock transactions until May 6, 1997.[15]
The provisions governing the above
transactions are Sections 23 and 25 of the RSA[16]
and Rule 25-1 of the RSA Rules, which state as follows:
“SEC. 23. Margin Requirements. –
x x x x x x x
x x
(b)
It
shall be unlawful for any member of an exchange or any broker or dealer,
directly or indirectly, to extend or maintain credit or arrange for the
extension or maintenance of credit to or for any customer –
(1)
On
any security other than an exempted security, in contravention of the rules and
regulations which the Commission shall prescribe under subsection (a) of this
Section;
(2)
Without
collateral or on any collateral other than securities, except (i) to maintain a
credit initially extended in conformity with the rules and regulations of the
Commission and (ii) in cases where the extension or maintenance of credit is
not for the purpose of purchasing or carrying securities or of evading or
circumventing the provisions of subparagraph (1) of this subsection.
x x x x x x x
x x”
“SEC. 25. Enforcement
of margin requirements and restrictions on borrowings. – To prevent
indirect violations of the margin requirements under Section 23 hereof, the
broker or dealer shall require the customer in nonmargin transactions to pay
the price of the security purchased for his account within such period as the
Commission may prescribe, which shall in no case exceed three trading days;
otherwise, the broker shall sell the security purchased starting on the next
trading day but not beyond ten trading days following the last day for the
customer to pay such purchase price, unless such sale cannot be effected within
said period for justifiable reasons. The
sale shall be without prejudice to the right of the broker or dealer to recover
any deficiency from the customer. x x x.”
“RSA
RULE 25-1
“Purchases
and Sales in Cash Account
“(a) Purchases by a customer in a cash account
shall be paid in full within three (3) business days after the trade date.
“(b) If full payment is not received within the
required time period, the broker or dealer shall cancel or otherwise liquidate
the transaction, or the unsettled portion thereof, starting on the next
business day but not beyond ten (10) business days following the last day for
the customer to pay, unless such sale cannot be effected within said period for
justifiable reasons.
“(c) If a transaction is cancelled or otherwise
liquidated as a result of non-payment by the customer, prior to any subsequent
purchase during the next ninety (90) days, the customer shall be required to
deposit sufficient funds in the account to cover each purchase transaction
prior to execution.
x x
x x
x x x
x x
“(f) Written application for an extension of the
period of time required for payment under paragraph (a) be made by the broker
or dealer to the Philippine Stock Exchange, in the case of a member of the
Exchange, or to the Commission, in the case of a non-member of the Exchange.
Applications for the extension must be based upon exceptional circumstances and
must be filed and acted upon before the expiration of the original payment
period or the expiration of any subsequent extension.”
Section 23(b)
above -- the alleged violation of petitioner which provides the basis for
respondent’s defense -- makes it unlawful for a broker to extend or maintain
credit on any securities other than in conformity with the rules and
regulations issued by Securities and Exchange Commission (SEC). Section 25 lays down the rules to prevent indirect
violations of Section 23 by brokers or dealers.
RSA Rule 25-1 prescribes in detail the regulations governing cash accounts.
The United States, from which our country’s
security policies are patterned,[17] abound with authorities explaining
the main purpose of the above statute on margin[18]
requirements. This purpose is to
regulate the volume of credit flow, by way of speculative transactions, into
the securities market and redirect resources into more productive uses. Specifically, the main objective of the law on
margins is explained in this wise:
“The
main purpose of these margin provisions xxx is not to increase the safety of
security loans for lenders. Banks and brokers
normally require sufficient collateral to make themselves safe without the help
of law. Nor is the main purpose even
protection of the small speculator by making it impossible for him to spread
himself too thinly – although such a result will be achieved as a byproduct of
the main purpose.
x x
x x x x x x x
“The
main purpose is to give a [g]overnment credit agency an effective method of
reducing the aggregate amount of the nation’s credit resources which can be
directed by speculation into the stock market and out of other more desirable
uses of commerce and industry x x x.”[19]
A related purpose of the
governmental regulation of margins is the stabilization of the economy.[20] Restrictions on margin percentages are
imposed “in order to achieve the objectives of the government with due regard
for the promotion of the economy and prevention of the use of excessive
credit.”[21]
Otherwise
stated, the margin requirements set out in the RSA are primarily intended to
achieve a macroeconomic purpose -- the protection of the overall economy from
excessive speculation in securities.
Their recognized secondary purpose is to protect small investors.
The law places the burden of
compliance with margin requirements primarily upon the brokers and dealers.[22] Sections 23 and 25 and Rule 25-1, otherwise
known as the “mandatory close-out rule,”[23]
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.[24] 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 loan.[25] Brokers take these securities/stocks to their
bank and borrow the “balance” on it, since they have to pay in full for the traded
stock. Hence, increasing margins[26] i.e., decreasing the amounts which brokers may lend for the
speculative purchase and carrying of stocks is the most direct and effective
method of discouraging an abnormal attraction of funds into the stock market
and achieving a more balanced use of such resources.
“x x x [T]he x x x primary concern
is the efficacy of security credit controls in preventing speculative excesses
that produce dangerously large and rapid securities price rises and accelerated
declines in the prices of given securities issues and in the general price
level of securities. Losses to a given
investor resulting from price declines in thinly margined securities are not of
serious significance from a regulatory point of view. When forced sales occur and put pressures on
securities prices, however, they may cause other forced sales and the resultant
snowballing effect may in turn have a general adverse effect upon the entire
market.”[27]
The nature of
the stock brokerage business enables brokers, not the clients, to verify, at
any time, the status of the client’s account.[28] Brokers, therefore, are in the superior
position to prevent the unlawful extension of credit.[29] Because of this awareness, the law imposes
upon them the primary obligation to enforce the margin requirements.
Right is one
thing; obligation is quite another. A
right may not be exercised; it may even be waived. An obligation, however, must be performed;
those who do not discharge it prudently must necessarily face the consequence
of their dereliction or omission.[30]
Respondent Liable for the First,
But Not for the Subsequent Trades
Nonetheless, these
margin requirements are applicable only to transactions entered into by the present
parties subsequent to the initial
trades of April 10 and 11, 1997. Thus,
we hold that petitioner can still collect from respondent to the extent of the
difference between the latter’s outstanding obligation as of April 11, 1997
less the proceeds from the mandatory sell out of the shares pursuant to the RSA
Rules. Petitioner’s right to collect is
justified under the general law on obligations and contracts.[31]
Article 1236
(second paragraph) of the Civil Code, provides:
“Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor.”
(Emphasis supplied)
Since a brokerage relationship is essentially a contract for
the employment of an agent, principles of contract law also govern the
broker-principal relationship.[32]
The right to
collect cannot be denied to petitioner as the initial transactions were entered
pursuant to the instructions of respondent.
The obligation of respondent for stock transactions made and entered
into on April 10 and 11, 1997 remains outstanding. These transactions were valid and the
obligations incurred by respondent concerning his stock purchases on these dates subsist. At that time,
there was no violation of the RSA yet.
Petitioner’s fault arose only when it failed to: 1) liquidate the
transactions on the fourth day following the stock purchases, or on April 14
and 15, 1997; and 2) complete its liquidation no later than ten days thereafter,
applying the proceeds thereof as payment for respondent’s outstanding
obligation.[33]
Elucidating
further, since the buyer was not able to pay for the transactions that took
place on April 10 and 11, that is at T+4, the broker was duty-bound to advance
the payment to the settlement banks without prejudice to the right of the
broker to collect later from the client.[34]
In securities
trading, the brokers are essentially the counterparties to the stock
transactions at the Exchange.[35] Since the principals of the broker are
generally undisclosed, the broker is personally liable for the contracts thus
made.[36] Hence, petitioner had to advance the payments
for respondent’s trades. Brokers have a
right to be reimbursed for sums advanced by them with the express or implied
authorization of the principal,[37]
in this case, respondent.
It should be
clear that Congress imposed the margin requirements to protect the general
economy, not to give the customer a free ride at the expense of the broker.[38] Not to require respondent to pay for his April
10 and 11 trades would put a premium on his circumvention of the laws and would
enable him to enrich himself unjustly at the expense of petitioner.
In the present
case, petitioner obviously failed to enforce the terms and conditions of its Agreement
with respondent, specifically paragraph 8 thereof, purportedly acting on the
plea[39]
of respondent to give him time to raise funds therefor. These stipulations, in relation to paragraph
4,[40]
constituted faithful compliance with the RSA.
By failing to ensure respondent’s payment of his first purchase
transaction within the period prescribed by law, thereby allowing him to make
subsequent purchases, petitioner effectively converted respondent’s cash
account into a credit account. However,
extension or maintenance of credits on nonmargin transactions, are specifically
prohibited under Section 23(b). Thus, petitioner
was remiss in its duty and cannot be said to have come to court with “clean
hands” insofar as it intended to collect on transactions subsequent to the initial
trades of April 10 and 11, 1997.
Respondent Equally Guilty
for Subsequent Trades
On the other
hand, we find respondent equally guilty in entering into the transactions in
violation of the RSA and RSA Rules. We
are not prepared to accept his self-serving assertions of being an “innocent
victim” in all the transactions. Clearly, he is not an unsophisticated, small
investor merely prodded by petitioner to speculate on the market with the
possibility of large profits with low --
or no -- capital outlay, as he pictures himself to be. Rather, he is an experienced and
knowledgeable trader who is well versed in the securities market and who made
his own investment decisions. In fact,
in the Account Opening Form (AOF), he indicated that he had excellent knowledge
of stock investments; had experience in stocks trading, considering that he had
similar accounts with other firms.[41] Obviously, he knowingly speculated on the
market, by taking advantage of the “no-cash-out” arrangement extended to him by
petitioner.
We note that
it was respondent who repeatedly asked for some time to pay his obligations for
his stock transactions. Petitioner
acceded to his requests. It is only when
sued upon his indebtedness that respondent raised as a defense the invalidity
of the transactions due to alleged violations of the RSA. It was respondent’s privilege to gamble or
speculate, as he apparently did so by asking for extensions of time and
refraining from giving orders to his broker to sell, in the hope that the
prices would rise. Sustaining his argument
now would amount to relieving him of the risk and consequences of his own
speculation and saddling them on the petitioner after the result was known to
be unfavorable.[42] Such contention finds no
legal or even moral justification and must necessarily be overruled. Respondent’s conduct is precisely the
behavior of an investor deplored by the law.
In the final
analysis, both parties acted in violation of the law and did not come to court
with clean hands with regard to transactions subsequent to the initial trades
made on April 10 and 11, 1997. Thus, the
peculiar facts of the present case bar the application of the pari delicto rule -- expressed in the
maxims “Ex dolo malo non oritur action”
and “In pari delicto potior est conditio
defendentis” -- to all the
transactions entered into by the parties. The pari
delecto rule refuses legal remedy to either party to an illegal agreement
and leaves them where they were.[43] In this case, the pari delicto rule applies only to transactions entered into after the initial trades made on April
10 and
11, 1997.
Since the
initial trades are valid and subsisting obligations, respondent is liable for
them. Justice and good conscience require
all persons to satisfy their debts. Ours
are courts of both law and equity; they compel fair dealing; they do not abet clever
attempts to escape just obligations. Ineludibly,
this Court would not hesitate to grant relief in accordance with good faith and
conscience.
Pursuant to RSA
Rule 25-1, petitioner should have liquidated the transaction (sold the stocks)
on the fourth day following the transaction (T+4) and completed its liquidation
not later than ten days following the last day for the customer to pay
(effectively T+14). Respondent’s
outstanding obligation is therefore to be determined by using the closing
prices of the stocks purchased at T+14 as basis.
We consider the
foregoing formula to be just and fair under the circumstances. When petitioner tolerated the subsequent purchases of respondent
without performing its obligation to liquidate the first failed transaction,
and without requiring respondent to deposit cash before embarking on trading
stocks any further, petitioner, as the broker, violated the law at its own peril. Hence, it cannot now complain for failing to
obtain the full amount of its claim for these latter transactions.
On the other
hand, with respect to respondent’s counterclaim for damages for having been
allegedly induced by petitioner to generate additional purchases despite his
outstanding obligations, we hold that he deserves no legal or equitable relief
consistent with our foregoing finding that he was not an innocent investor as
he presented himself to be.
Second Issue:
Jurisdiction
It is axiomatic that the
allegations in the complaint, not the defenses set up in the answer or in the
motion to dismiss determine which court has jurisdiction over an action.[44]
Were we to be governed by the latter rule,
the question of jurisdiction would depend almost entirely upon the defendant.[45]
The instant controversy is an
ordinary civil case seeking to enforce rights arising from the Agreement (AOF) between
petitioner and respondent. It relates to
acts committed by the parties in the course of their business
relationship. The purpose of the suit is
to collect respondent’s alleged outstanding debt to petitioner for stock
purchases.
To be sure, the RSA and its Rules
are to be read into the Agreement entered into between petitioner and
respondent. Compliance with the terms of
the AOF necessarily means compliance with the laws. Thus, to determine whether the parties
fulfilled their obligations in the AOF, this Court had to pass upon their
compliance with the RSA and its Rules. This,
in no way, deprived the Securities and Exchange Commission (SEC) of its
authority to determine willful violations of the RSA and impose appropriate
sanctions therefor, as provided under Sections 45 and 46 of the Act.
Moreover, we uphold
the SEC in its Opinion, thus:
“As
to the issue of jurisdiction, it is settled that a party cannot invoke the
jurisdiction of a court to secure affirmative relief against his opponent and
after obtaining or failing to obtain such relief, repudiate or question that
same jurisdiction.
“Indeed,
after voluntarily submitting a cause and encountering an adverse decision on
the merits, it is too late for petitioner to question the jurisdictional power
of the court. It is not right for a
party who has affirmed and invoked the jurisdiction of a court in a particular
matter to secure an affirmative relief, to afterwards deny that same
jurisdiction to escape a penalty.”[46]
WHEREFORE, the
assailed Decision and Resolution of the Court of Appeals are hereby MODIFIED.
Respondent is ordered to pay petitioner
the difference between the former’s outstanding obligation as of
The RTC of
Makati, Branch 57 is hereby directed to make a computation of respondent’s
outstanding obligation using the closing prices of the stocks at T+14 as basis
-- counted from April 11, 1997 and to issue the proper order for payment if
warranted. It may hold trial and hear the parties to be
able to make this determination.
No finding as to costs in this
instance.
SO ORDERED.
ARTEMIO
V. PANGANIBAN
W E C O N C U R:
Associate
Justice
Associate Justice
CERTIFICATION
Pursuant to
Section 13, Article VIII of the Constitution, I certify that the conclusions in
the above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
ARTEMIO V. PANGANIBAN
Chief Justice
[1] Rollo, pp. 10-40.
[2] Annex “A” of Petition; id., pp. 42-50. Fifth Division. Penned by Justice Renato C. Dacudao, and concurred in by Justices Eugenio S. Labitoria (Division chairperson) and Danilo B. Pine (member).
[3] Annex “B” of Petition; id., p. 52.
[4] CA Decision, p. 8; id., p. 49.
[5]
[6] Annex “I” of Petition, pp. 1-7; rollo, pp. 106-112; penned by Judge Reinato G. Quilala.
[7] CA
Decision, p. 7; rollo, p. 48.
[8] On
[9] Petition, p. 7; rollo, p. 16.
[10] See Account Application Form; id., p. 91.
[11]
See Statement of Account,
[12] Respondent purchased as well as sold shares on the same day.
[13]
Statement of Account,
[14] Ibid.
[15]
See Statement of Account,
[16]
The law in force at the time the
Complaint was instituted. It has since
been superseded by Republic Act No. 8799 (Securities Regulation Code), which
was approved on
[17]
Act No. 2581,
otherwise known as the Blue Sky Law and passed in 1916, was the first
securities legislation in the country.
Later in 1936, Congress of the Philippines, finding it inadequate to
protect the investing public from scheming issuers, repealed Act No. 2581 and
passed Commonwealth Act No. 83, the original Securities Act in the
country. As the Philippines was then a
colony of the United States, one would not be surprised to know that
Commonwealth Act No. 83 was substantially a composite of two federal
legislations in the United States (namely, the Securities Act of 1933 and the
Securities Exchange Act of 1934), as well as the Uniform Sale of Securities
Act. The basic regulatory structure of
those two
[18]
“In a margin
account,
the securities company extends credit. A
margin account is covered by a margin agreement which stipulates the terms and
conditions for maintaining such an account.
Under the present law, the amount of credit that may be initially
extended is limited to 50 percent of the current market price of the
security.” (Comment of the Philippine
Stock Exchange, Inc. (PSE) dated
“A margin account x x x is an account in which the broker lends the customer cash with which to purchase securities. Unlike a cash account, a margin account allows an investor to buy securities with money that he does not have, by borrowing the money from the broker. The RSA limits margin borrowing to a maximum of 50% of the amount invested.” (Comment of the Securities and Exchange Commission (SEC) dated September 27, 2005, p. 17; rollo, p. 423).
[19]
Stonehill v. Security National Bank, 68 F.R.D. 24, 31,
[20] Mary Ann L. Ojeda, Securities Regulation Code with Annotations, 2002, p. 92.
[21] Morales, supra at note 17, p. 304.
[22]
Stern v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 603 F2d
1073,
[23]
See SEC’s Comment, p. 33; rollo, p. 439.
[24] Morales, supra at note 17, p. 302.
[25] Ibid.
[26]
Margin refers to the percentage
of the value which must be paid in cash by the purchaser. (Ojeda, supra at note 20).
[27]
Stonehill v. Security National Bank, supra at note 19.
[28]
Carolina Industries, Inc. v. CMS Stock Brokerage, Inc., 97 SCRA
734,
[29]
Ibid.
[30]
Lopez, Locsin, Ledesma & Co., Inc. v. Court of Appeals, 168
SCRA 276, December 8, 1988.
[31]
See Dominion Insurance Corp. v. CA, 376 SCRA 239, February 6, 2002,
where the Court held that while the law on agency prohibits respondent therein
from obtaining reimbursement, having deviated from the instructions of the
principal in the settlement of the claims of the insured, his right to recover
nonetheless was held justified under Article 1236, second paragraph, Civil
Code.
[32] §42 12 Am Jur 2d.
[33] RSA Rule 25-1.
[34]
Comment of the SEC dated
[35] Ibid.
[36] §21 73 Am Jur 2d.
[37] §294 12 Am Jur 2d.
[38]
[39] “In the event that my cash account is not liquidated within three (3) days from the date of purchase, or whenever in its sole discretion ASC considers it necessary for its own protection I hereby specifically authorize and empower ASC, without need of prior notice and demand, to sell so much of the securities in my account(s) (whether herein carried individually of jointly with others) and herein delivered as collateral necessary for the payment of any of my obligations to ASC. I hereby guarantee that such securities are free from all liens and encumbrances, it being expressly understood that in the event that any such liens are later discovered which prevent subsequent negotiation of said securities, ASC may, at its sole discretion, buy back the sold securities and collect from me whatever amount ASC may incur by reason of such buy back, including damages which it may suffer or may be required to pay. I further authorize ASC to buy, lend, borrow or arrange for the lending or borrowing of any and all securities to cover for any short-selling in such account(s), to transfer moneys or securities from any one of my account(s) to another, and to settle all outstanding obligations. It is hereby agreed and understood that I shall at all times be liable for payment of any unpaid balance owing, if any, on my account(s) together with interest, provided that I shall remain liable for any deficiency remaining in any such account(s) in the event of liquidation.” (Exh. “A-1”; rollo, p. 93)
[40] “When required by ASC, I agree to make a deposit on all my purchases equivalent to the amount stipulated herein. Securities purchased on my behalf shall be registered in the name of ASC until full payment of the purchase price, which payment shall in no case be made later than as specifically required by ASC or three (3) days after the date of said purchase, whichever is earlier, without need of any notice or demand. Subject to paragraph 16 hereof, ASC may, at its sole discretion, cancel in writing any waiver of deposit requirements at [any time].” (Ibid.)
[41] Rollo, p. 91.
[42]
Insular Financing & Business Corp. v. Imperial, 74 Phil. 331,
[43]
De
[44]
[45]
Speed Distributing Corp. v. CA, 425 SCRA 691, March 17, 2004; Serrano v. Muñoz (Hi) Motors, Inc., 21
SCRA 1085,
[46] Comment of the SEC, supra at note 34, p. 37; rollo, p. 443.