SEC En Banc Case No. 09-16-410 Belene G. Yucoco vs. Orient Pearl Resources Worldwide, inc., et al (Decision dtd 02 March 2023)

Securities and Exchange Commission COMMISSION EN BANC Republic of the Philippines Department of Finance

BELENE G. YUCOCO, Complainant-Appellee,

- versus - SEC En Banc Case No. 09-16-410

Promulgated: 02 March 2023 (SEC Case No. 15-3050)

ORIENT PEARL RESOURCES

PEARL MINING CORPORATION, WORLDWIDE, SPOUSES REYNALDO INC. ORIENT S

and EDWIN R. MASBANG, CONSTANTE TAPURO, GALENZOGA THERESE MICHAEL LEGITA, Respondents-Appellants RUBEN DORA M. CHERUBIM T. and L GALENZOGA, ALMADRO, ALMADRO TAPURO, SHIELA D.

X

DECISION

S. Galenzoga (Mr. Galenzoga) and Sheila Therese M. Galenzoga (Ms. issued by the Enforcement and Investor Protection Department (EIPD) [the "Assailed Order"], the dispositive portion of which, in part, reads: August 2016) with Attached Memorandum of Appeal dated 13 September 2016 (the "Appeal") filed by Respondents-Appellants Spouses Reynaldo Galenzoga)(collectively Commission reverses and sets aside the Order dated 16 August 2016 Before this Commission is the Notice of Appeal (Re: Order dated 16 "Spouses Galenzoga") praying that the

and SHIELA GALENZOGA are hereby found liable for violating Section that Spouses Galenzoga violated Section 26 of the Securities Regulation Code and are each ORDERED to accordance with Sec. 54 of the RCC within FIFTEEN (15) DAYS from receipt hereof." "PREMISES CONSIDERED, Respondents REY GALENZOGA pay a fine of ONE MILLION (P1,000,000.00) PESOS in

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et SEC En Banc Case No. 09-16-410 Page 2 of 18 DECISION

THE PARTIES

address at No. 51 Marvex Drive, A. Bonifacio Ave., Balintawak, Quezon and represented by her counsel, A tty. Margarita C. Feliciano, with office City. Complainant-Appellee Belene G. Yucoco (Ms. Yucoco) is of legal age

Its business address is at The One Executive Office Bldg., #5 West Avenue, the laws of the Republic of the Philippines, having been issued a Certificate of Incorporation bearing no. CS200620107 on 9 January 2007. (Orient Pearl Resources) is a corporation organized and existing under Quezon City. Respondent-Appellant Orient Pearl Resources Worldwide, Inc.

Pasig City. Incorporation bearing no. CS200814274 on 10 September 2008. Its business address is at 1903-B Tektite West Tower, PSE Centre, Ortigas, Pearl Mining) is a corporation organized and existing under the laws of the Republic of the Philippines, having been issued a Certificate of Respondent-Appellant Orient Pearl Mining Corporation (Orient

and represented by their counsel, Mendoza Antero & Associates with office address at U-2310 Prestige Tower Condominium, F. Ortigas Jr. Road, Ortigas Center, Pasig City. Respondents-Appellants Spouses Galenzoga are both of legal age

Cherubim D. Tapuro (Respondents-Appellants Tapuro) are both of legal with office address at 4/F, The West Wing Bldg., 107 West Avenue, and represented by their counsel, Salumbides Ugalingan and Reysio-Cruz Quezon City. Respondents-Appellants Constante T. Tapuro and Michael

with address at Block 79, Lot 21, Flores de Mayo Street, Lagro Subdivision, Quezon City- Respondent-Appellant Dora Almadro Legita is of legal age, and

are both of legal age and with address at No. 41-A, Kadir Point Condominium, Bohol Avenue, Quezon City. Respondents-Appellants Ruben L. Almadro and Edwin R. Masbang

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et a SEC En Banc Case No. 09-16-410 Page 3 of 18 DECISION

THE RELEVANT FACTS

they were introduced to each other by Ms. Galenzoga. year 2008 when Mr. Galenzoga started dealing with Ms. Yucoco, after The legal battle between Appellants and Appellee dates back to the

trading of minerals and other mineral products, and his need for money company that the former will establish for the purpose of carrying out the relative thereto.1 Mr. Galenzoga had several conversations with Ms. Yucoco on the

the following purposes, to wit: On 10 September 2008, Orient Pearl Mining was incorporated for

or any part of the business, property, and liabilities of any or agents, or any other businesses which may be usefully Mineral Production Sharing Agreement (MPSA), Small Scale management thereof, as principal, contractor, or in a joint venture capacity, as may be permitted by law, and any other businesses which may be usefully carried on in connection with such business, and to acquire and undertake the whole person or company carrying on business as such contractors "To engage in, operate, conduct, maintain, and carry on the business of mining exploration, extraction, quarrying, within and outside the Philippines, for purposes of production and marketing thereof; to construct and operate plant and mill machineries necessary to convert such minerals into marketable products; to enter into contract and/or partnership with Philippines government on the Mining Permit (SSMP) or any other applicable agreements as provided by law, and to acquire all forms of mining rights from other parties, and to undertake the operation and carried on therewith."2 development, and management of various mineral resources

be sufficient to sustain the operation of the corporation prompted Mr Pesos: One Million (P1,000,000.00), with an interest of 7.5% per month, and subsequently, Pesos: Two Million (P2,000,000.00) with an interest of Galenzoga to allegedly borrow money from Ms. Yucoco in the amount of The uncertainty that the capitalization of Orient Pearl Mining will

2 Complaint. Annex "F" (Article SECOND of the Articles of Incorporation of Orient Pearl Mining) ' Joint Counter-Affidavit dated 11 March 2015 of Reynaldo S. Galenzoga and Shiela Therese M. Galenzoga. Pars. 5-7. See also Memoran um of Appeal (Annex"B")

Belene Yucoco.vs.Orient Pearl Resources Worldwide.Inc.et SEC En Banc Case No. 09-16-410 Page 4 of 18 DECISION

and 18 October 2008, respectively, were issued.3 5% per month, for which Promissory Notes dated 11 September 2008

permits for its operation, however, it was not able to extract a substantial amount of high-grade chromite at the site which allegedly led to the cancellation of its operation.4 On 28 October 2008, Orient Pearl Mining obtained the required

funds of the corporation were already depleted, Mr. Galenzoga procured mining site in Brgy Balocbahan, Bayog, Zamboanga del Sur, and bought the rights of Peng Cheng Metallic Resources Corporation (PCMRC) over the same. To help defray the operating expenses, and considering that the another loan from Ms. Yucoco in the amount of Two Million principal amount and a monthly interest of 5% was issued to the latter.6 (P2,000,000.00)5, for which another Promissory Note covering the In 2009, Orient Pearl Mining was allegedly able to find another

Sur enabled Orient Pearl Mining to extract iron ores. However, the sharp compelled Orient Pearl Mining to altogether cease operations because PCMRC suspended payment for the project.7 Thus, the Spouses Galenzoga decline in the world prices of iron ore and other minerals allegedly were unable to pay their obligations to Ms. Yucoco. The mining operation in Brgy Balocbahan, Bayog, Zamboanga del

in evidence the Certification dated 29 September 2014 issued by the restraining the Spouses Galenzoga and their agents, employees, and and (b) the filing of the appropriate criminal complaints against the the EIPD therein praying for (a) the issuance of a Cease and Desist Order relevant provisions of the Securities Regulation Code (SRC). In her through Orient Pearl Mining, were engaged in the unauthorized sale/offer of securities as defined in the SRC, in the form the promissory notes and checks that they issued which assumed the character of persons working for them, from engaging in the sale/offer of securities, Spouses Galenzoga before the Department of Justice for violation of Verified Complaint, Ms. Yucoco maintained that the Spouses Galenzoga, "evidences of indebtedness".* In support thereof, Ms. Yucoco presented On 9 October 2014, Ms. Yucoco filed her Verified Complaint before

3 Joint Counter-Affidavit dated 11 March 2015 of Reynaldo S. Galenzoga and Shiela Therese M. Galenzoga. Pars. 7 and 8. See also, Memorandum of Appeal (Sub-Annexes "J" and "K" of Annex "B") 4 Ibid. Pars. 32 and 33 6 Memorandum of Appeal. Sub-Annex "L" of Annex "B" 8 Verified Complaint. Pars. 24 and 25 5 Ibid. Pars. 35 to 37 7 Joint Counter-Affidavit. Pars. 44 and 45

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et a SEC En Banc Case No. 09-16-410 Page 5 of 18 DECISION

Commission which stated that Orient Pearl Resources and Orient Pearl Mining are not registered issuers of securities.9

the SRC.10 The Spouses Galenzoga also applied the Howey Test and and Ms. Yucoco are not investment contracts since the elements are not loan amount and interests is not contingent on the success of the Galenzoga denied Ms. Yucoco's allegation that they were selling argued that loan transactions entered into by and between Mr. Galenzoga securities, and maintained that the transaction that Mr. Galenzoga and Ms. Yucoco entered was a simple loan; thus, the checks and the promissory notes that she issued cannot be considered "securities" under present i.e. there was no investment in money, and the payment of the business.11 In their Joint Counter-Affidavit dated 11 March 2015, Spouses

selling or offering securities or soliciting investments. What Ms. Yucoco on 18 November 2014, Ms. Yucoco, through counsel, manifested that she has no brochure or document(s) showing that respondents were publicly presented were the documents used by the Spouses Galenzoga which allegedly convinced her to invest her money with them.12 During the clarificatory conference that was conducted by the EIPD

statements/admissions of Mr. Galenzoga showed that the payment of the business operations of Orient Pearl Mining and/or will come from the Mr. Galenzoga from Ms. Yucoco as the share or participation of the latter in Orient Pearl Mining, although not in the form of shares of stock but in the form of investment contracts. The checks and promissory notes an investment contract are present in the transactions entered into by that the business will generate profit that will enable them to pay the Galenzoga involved a sale of securities, not a loan because the amount obtained from Ms. Yucoco is dependent on the success of the profits of the corporation. The EIPD considered the amount obtained by executed by Mr. Galenzoga were thus considered by the EIPD to be evidence of indebtedness. Finally, the EIPD held that all the elements of parties and that the Spouses Galenzoga's assurance made to Ms. Yucoco Appellants liable for violating Section 26 of the SRC and imposed upon them the appropriate penalties provided in Section 54 of the SRC. The EIPD ruled that the transaction between Ms. Yucoco and the Spouses On 16 August 2016, the EIPD issued the Assailed Order finding

11 (bid. Pars. 10-17 9 Ibid. Par. 15 10 Joint Counter-Affidavit. Pars. 7, 20 and 28 12 Assailed Order. page 3

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et al SEC En Banc Case No. 09-16-410 Page of 18 DECISION

believe that the business will be 100% successful. guaranteed interests constituted fraud because Ms. Yucoco was made to

EIPD committed reversible error in giving due course to the Complaint promissory notes as investment contracts, which is contrary to the terms of the latter; and in finding that they committed fraud sans the quantum Appeal praying for the reversal of the Assailed Order, arguing that the which allegedly violated the rule on non-forum shopping; in treating the of proof required by law. On 13 September 2016, the Spouses Galenzoga filed the instant

the SRC. Memorandum dated 23 September 2016 therein praying for the dismissal of the Appeal, arguing that the simultaneous filing of the complaints before the Office of the City Prosecutor of Quezon City and the reiterated her argument that the promissory notes executed by Mr. Galenzoga are securities in the form of evidences of indebtedness under Commission does not constitute forum shopping. Ms. Yucoco also On 28 September 2016, Complainant-Appellee filed her Reply

Reply Memorandum praying for the issuance of a decision sustaining the imposition of an administrative fine upon the Spouses Galenzoga, and directing the EIPD to file the appropriate complaint before the Department of Justice against the Appellants Spouses Galenzoga. On 1 December 2016, Appellee Ms. Yucoco filed her Supplemental

as counsel in the instant case as well as in all other cases handled by the firm for Ms. Yucoco due to professional and personal reasons, and prayed that it be relieved of all professional responsibilities related to the instant Feliciano Law Offices filed a Manifestation stating that it has withdrawn case. In compliance with the Order issued by the Commission, Reyes, and

then deemed submitted for decision. Having received no other pleadings from the parties, the case was

ISSUE/S

Whether Complainant-Appellee is guilty of forum shopping.

(I Whether Mr. Galenzoga is engaged in the sale/offer of "securities" in the form of investment contracts in violation of the SRC.

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et al. SEC En Banc Case No. 09-16-410 Page 7 of 18 DECISION

RULING

I Complainant-Appellee did not

Shopping when she filed the violate the rule against Forum

instant case.

shopping because such reliefs are allegedly grounded/based on the same reversible error in giving due course to the Complaint of Ms. Yucoco, instead of summarily dismissing the same with prejudice, on the ground that it allegedly violated the rule against forum shopping. They argued that the filing of the Complaint violated the rule against forum shopping because Ms. Yucoco deliberately failed to declare the two (2) criminal complaints which she filed with the Office of the City Prosecutor of Respondents-Appellants further argued that Ms. Yucoco's act of seeking different reliefs will not remove the instant case from the ambit of forum Quezon City (OCP-QC) involving materially similar transactions, facts, circumstances, and issues as those presented in the instant case. transactions, causes, and issues.13 Respondents-Appellants maintain that the EIPD committed

simultaneous filing of the complaints before the OCP-QC and with this Commission does not constitute forum shopping as they are founded on Penal Code, while the latter was for violation of the Securities Regulation different causes of action, i.e. the former was for violation of the Revised Code.14 Complainant-Appellee countered with the argument that her

other courts.16 The grave evil sought to be avoided by the rule judgment.15 It exists when a party avails himself/herself of several judicial remedies in different courts, simultaneously or successively, same essential facts and circumstances, and all raising substantially the same issues either pending in or already resolved adversely by some deplorable practice of resorting to multiple fora for the purpose of obtaining the same relief, to increase the chances of obtaining a favorable which are all substantially founded on the same transactions and the Forum shopping has been considered in our jurisdiction as a

13 Memorandum of Appeal. Pars. 39 and 46 15 Dy v. Mandy Commodities, Inc. (G.R. No. 171842, July 22, 2009). 16 Intramuros Administration v. Offshore Construction Development Company (G.R. No. 196795, March 7, 2018, citing Spouses Reyes v. Spouses Chung, G.R. No. 228112, September 13, 2017) 14 Reply Memorandum. Par. 3

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et SEC En Banc Case No. 09-16-410 Page 8 of 18 DECISION

two separate and contradictory decisions.17 against forum shopping is the rendition by two competent tribunals of

determine if forum shopping exists, to wit: In Zamora vs. Quinan,18 the Supreme Court laid down the test to

shopping is whether in the two (or more) cases pending. the elements of litis pendentia are present, or whether a another; otherwise stated, the test for determining forum there is identity of parties, rights or causes of action, and reliefs sought. "To determine whether a party violated the rule against forum shopping, the most important factor to ask is whether final judgment in one case will amount to res judicata in

another action is pending between the same parties for the unnecessary and vexatious." For litis pendentia to exist, three (3) requisites must concur: For its part, litis pendentia "refers to that situation wherein same cause of action, such that the second action becomes

The requisites of litis pendentia are: (a) the identity of such that judgment in one, regardless of which party is parties, or at least such as representing the same asserted and relief prayed for, the relief being founded successful, would amount to res judicata in the other interests in both actions; (b) the identity of rights on the same facts; and (c) the identity of the two cases

subsequent case when the following requisites are On the other hand, res judicata or prior judgment bars a satisfied:

parties; (3) it is a judgment or an order on the merits; (4) there is - between the first and the second actions - identity of parties, of subject matter, and of causes of action." (Emphasis supplied) (1) the former judgment is final; (2) it is rendered by a court having jurisdiction over the subject matter and the

18 G.R. No. 216139, November 29, 2017. 17 Fontana Development Corp. v. Vukasinovic (G.R. No. 222424, September 21, 2016)

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et al SEC En Banc Case No. 09-16-410 Page 9 of 18 DECISION

rule against forum shopping as the issues, causes of action, and reliefs parameters, this Commission holds that Ms. Yucoco did not violate the sought in the instant case are different from the complaints filed with the OCP-QC. Seen from the context of the foregoing established rules and

rendition of a judgment convicting the Spouses Galenzoga for violation of the OCP-QC will readily show that the subject matters or the nature of the actions consist of criminal charges for estafa and syndicated estafa, respectively, as defined and punished under the Revised Penal Code the RPC, and the payment by the latter of the civil liability. On the other hand, the nature of the action of the Complaint subject of the instant case Sections 8, 12, and 26 of the SRC, which is a special law; and the relief protection of investors, and the filing of an appropriate criminal (RPC). Consequently, the relief sought therein by Ms. Yucoco is the consists of administrative and criminal action for alleged violation of sought by Ms. Yucoco is the issuance of a Cease and Desist Order for the complaint with the DOJ for investment fraud. A perusal of the allegations presented in the Complaints filed with

similar transactions or acts allegedly made by the Spouses Galenzoga commission of an act that is prohibited under the SRC i.e. the sale/offer of unregistered securities without the requisite registration statement, is considered malum prohibitum and warrants the imposition of the appropriate administrative penalties if proven by the required quantum of evidence.19 Necessarily, a determination on the culpability of Spouses absent on the ground the Complaints filed with the OCP-QC do not (or will not) constitute litis pendentia in relation to the instant case, because their respective subject matter(s) and causes of action are different. Specifically, an action for estafa under Article 315 of the RPC is entirely different from, and will not bar an action for violation of the SRC notwithstanding the fact that these actions are grounded/based on The foregoing is also explained by the fact that being a special law, the On account thereof, the Commission holds that forum shopping is

19 When an act is malum prohibitum, "[i]t is the commission of that act as defined by the law, and not the character or effect thereof, that determines whether or not the provision has been violated."

prohibita and mala in se: InABS-CBN Corp. v. Gozon we discussed the difference between acts mala

prohibitum. "An act which is declared malum prohibitum, malice or criminal intent is completely immaterial." The general rule is that acts punished under a special law are malum

XXX XXX XXX

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et al. SEC En Banc Case No. 09-16-410 Page 10 of 18 DECISION

which the rule against forum shopping seeks to avoid2o, is thus nil. of selling unregistered securities without a license. The possibility that conflicting judgments will be issued by the OCP-QC and this Commission, Galenzoga for estafa will not conflict with a judgment that this Commission will issue in passing upon Spouses Galenzoga's alleged acts

respective causes or action or subject matters are not identical as judicially resolved with finality.21 judicata in the instant case because aside from the fact that their explained earlier, the complaints filed with the OCP-QC have not been Neither will the complaints filed by the OCP-QC amount to res

H. The checks Notes issued by Mr. Galenzoga and Promissory

Crimes mala in se presuppose that the person who did the felonious act had criminal intent to do so, while crimes mala prohibita do not require knowledge or criminal intent:

but he did intend to commit an act, and that act is, by the very nature of things, the crime itself[.]" When an act is prohibited by a special law, it is considered Hence, "[ilntent to commit the crime and intent to perpetrate the act must be distinguished. A person may not have consciously intended to commit a crime; injurious to public welfare, and the performance of the prohibited act is the crime itself. In the case of mala in se it is necessary, to constitute a punishable nature of his act and to have a criminal intent; in the case of mala prohibita, unless such words as "knowingly" and "willfully" are contained in the statute, neither knowledge nor criminal intent is with every intention of being a law-abiding citizen becomes a offense, for the person doing the act to have knowledge of the necessary. In other words, a person morally quite innocent and criminal, and liable to criminal penalties, if he does an act prohibited by these statutes.

21 "On the other hand, res judicata or prior judgment bars a subsequent case when the fllowing judgments may be avoided for the sake of the stability of the rights and status of persons. (Yap vs Te, matter and the parties; (3) it is a judgment or an order on the merits; (4) there is - between the first required contributions or accounts. (Matalam v. People, G.R. Nos. 221849-50 (Resolution), [April 4, 20 Litis pendentia as a ground for the dismissal of a civil action refers to that situation wherein another party is not allowed to vex another more than once regarding the same subject matter and for the same cause of action. This theory is founded on the public policy that the same subject matter should not be the subject of controversy in courts more than once. in order that possible conflicting G.R. No. 186730, June 13, 2012) (1) the former judgment is final; (2) it is rendered by a court having jurisdiction over the subject and the second actions - identity of parties, of subject matter, and of causes of action." (Zamora vs Quinan. G.R. No. 216139,November 29, 2017) The non-remittance of GSIS and Pag-IBIG Fund premiums is malum prohibitum. What the relevant laws punish is the failure, refusal, or delay without lawful or justifiable cause in remitting or paying the action is pending between the same parties for the same cause of action, such that the second action becomes unnecessary and vexatious. The underlying principle of litis pendentia is the theory that a requisites are satisfied: 2016] XXX XXX XXX

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et al SEC En Banc Case No. 09-16-410 Page 11 of 18 DECISION

are not securities under the SRC and its IRR.

because by the terms thereof, the transaction entered into, and agreed upon by the parties is a simple loan.22 Respondents-Appellants thus argued that the EIPD committed reversible error in concluding that the checks and promissory notes are securities under the SRC because the and the promissory notes that Mr. Galenzoga issued are not securities elements of the Howey Test are not present.23 In the Appeal, Respondents-Appellants maintained that the checks

who was led to expect a monthly return rate of 2-4%, through the checks insisted that the checks and promissory notes are securities because they were allegedly issued in exchange for her investments and guaranteed a high rate of return. She claimed that in the instant case, she is an investor and the promissory notes.24 In her Reply Memorandum, Complainant-Appellee however

profits to be derived from the business operations of Orient Pearl and found that Mr. Galenzoga convinced the latter to invest in Orient Pearl Mining, and concluded that his issuance of the checks and promissory notes was meant to guarantee that the business of the corporation will yield profits. According to the EIPD, the checks and promissory notes that Mr. Galenzoga issued were therefore securities in the form of evidences of indebtedness because they will be paid from the Mining.25 In the Assailed Order, the EIPD agreed with Complainant-Appellee

We find for Respondents-Appellants.

Section 3.1 of the SRC defines securities as follows:

whether written or electronic in character. It includes: "Section 3. Definition of Terms. - 3.1. "Securities" are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments,

23 1bid. pars. 70 and 71 24 Reply Memorandum. page 14 25 Order. Page 7 22 Appeal. Par. 61

Belene Yuco s. Orient Pearl Resources Worldwide, Inc., et a SEC En Banc Case No. 09-16-410 Page 12 of 18 DECISION

(a)Shares of stocks, bonds, debentures, notes, evidences of indebtedness, asset-backed securities;

xxx" (Emphasis and underscoring supplied)

United States of America where our securities laws were patterned, the SRC has adopted a broad definition of securities with the intent of Just like the securities acts of other jurisdictions, specifically the

by those who seek to use the money of others on the promise of profits.27 considered, or ought to be known or considered, to be such in the commercial/financial world. Thus, in the case of Gabionza vs. Court of Appeals26 (the "Gabionza Case"), the Supreme Court ruled that the term covering practically all forms and varieties thereof which are known or "securities" embodies a flexible rather than static principle, one that is capable of adaptation to meet the countless and variable schemes devised

adjudicatory bodies are not bound by the legal perspective expounded in the aforementioned case, said case provides a useful framework in our own examination of the scope of the term securities. Although foreign case law is merely persuasive authority and our

whether written or electronic in character within the Philippines are securities or presumed to be securities. interests in a corporation or in a commercial enterprise or profit- making venture and evidence by a certificate, contract, instrument, this Commission has consistently held that all shares, participation, or On the basis of the foregoing statutory and jurisprudential bases,

a permanent improvement revolving fund, similar to a "bond". Being indebtedness pertains to certificates for the creation and maintenance of equivalent to a bond, it is properly understood as an acknowledgment of of debt securities or obligations of corporations such as long term commercial and short-term commercial papers.2: A certificate of A certificate or evidence of indebtedness is a written representation

instrument that does not fall under the securities category.Reves et al. vs. Ernst & Young, 494 U.S. 27 In the US case of Reves et al vs. Ernst & Young the US Supreme Court stated that the US Congress enacted a definition of "security" sufficiently broad to encompass virtually any instrument that might be sold as an investment. Because the US Securities Acts define "security" to include "any note", the presumption is that every note is a security and that presumption may be rebutted only by a 2004, 1st ed., p.7. 26 G.R. No. 161057, 12 September 2008. showing that the note bears a strong resemblance to the one of the enumerated categories of 28 Decasa, Lucia M., Securities Regulations Code Annotated with Implementing Rules and Regulations, 56, 21 February 1990.

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et SEC En Banc Case No. 09-16-410 Page 13 of 18 DECISION

an obligation to pay a fixed sum of money. It is usually used for the purpose of long-term loans.29

and must be registered with the Commission unless the issuer shows that the same are exempt from registration. Subsection 8.1 of the Securities Regulation Code (SRC) is categorical in stating that "securities shall not be sold or offered for sale or distribution within the Philippines, without Under the SRC, evidences of indebtedness are considered securities

securities. This is justified by the fact that stock market transactions affect the purpose of the provision of the SRC requiring the registration of securities is to afford public protection from investing in worthless general public and the national economy. The rise and fall of stock market indices reflect a considerable degree of the state of the economy. Trends in stock prices tend to herald changes in business conditions. Development Corporation,31 the Supreme Court emphasized that the a registration statement duly filed with and approved by the Commission." Consequently, securities transactions are impressed with public interest, and are thus subject to public regulation.3 In the case of Herbosa vs. CJH

the registration requirements prescribed under the SRC are applicable if transaction involves a public offering depends on all the surrounding between the company or the person making the offer and the persons to whom the offer is made as friends, customers, or co-adventurers, etc. or are the persons mere outsiders? If they are mere outsiders the offer is made to the public, and in such case, the fact that the offer is made to a limited class, e.g., to the members of a single company (not being the company offering its shares), or to the members of a few companies, or to the members of a particular profession, or to the investors in a particular class of companies, does not make it less an offer to the public." the registrant or someone acting for it intends a public offering or distribution of the registrant's securities.32 Whether a particular circumstances; the test is: "Is there a sufficient subsisting connection Relative thereto, the Commission has maintained a position that

law, however, expressly recognizes and provides that certain securities33 within the Philippines is a regulated activity and should therefore be made only on the basis of a license duly issued by the Commission. The Thus, as a general rule, the sale, offer, or distribution of securities

29 G.R. No. 93397, Traders Royal Bank vs. Court of Appeals, 3 March 1997. 30 G.R. No. 160016, Abacus Securities Corporation vs. Ampil, 27 February 2006. 31 G.R. No. 210316, 28 November 2016 32 SEC-OGC Opinion No. 04-09, Re: Registration of Securities, 16 February 2009. 33 Section 9 of the SRC

Belene Yucoco.vs.Orient Pearl Resources Worldwide,Inc.,e SEC En Banc Case No. 09-16-410 Page 14 of 18 DECISION

or transactions34 are exempt, for which reason, they are not required to be registered. One of the exempt transactions recognized by law is the sale of securities by an issuer to less than twenty (20) persons during any twelve (12) month period.35

the loan transaction subject of the instant case, are not required to be checks and the promissory notes issued by Mr. Galenzoga are evidences of indebtedness inasmuch as they are written representations of debt securities or obligations, which therefore fall under the definition of registered since they were issued to one individual only. In fact, there is nothing in the records which shows that Mr. Galenzoga issued checks and promissory notes to other persons other than Complainant-Appellee. "securities" under the SRC, such checks and promissory notes, as well as On the basis of the foregoing, this Commission holds that while

secure the same, to only one (1) person i.e. Complainant-Appellee. to secure the short-term loans (on a recurring basis) in the aggregate amount of P4Billion that it obtained from about 700 lenders, were Case are not present in the instant case, specifically considering that Mr.Galenzoga obtained a loan and issued checks/promissory notes to that, contrary to Complainant-Appellees' assertion, the case of Gabionza case. In the Gabionza Case, the checks that were issued by ASB Holdings considered by the Supreme Court to have assumed the nature of issued in lieu of the securities with the intent of taking the case out of the purview of the securities law which requires a prior license to sell or deal in securities and registration thereof. The circumstances in the Gabionza vs Court of Appeals (the "Gabionza Case") is not applicable to the instant securities in the form of evidences of indebtedness because they were Against the foregoing factual backdrop, it is also not difficult to see

the fact that Mr. Galenzoga and Complainant-Appellee executed promissory notes36 which specifically embody the terms and conditions that they agreed upon relating to the payment by the former of the principal loan amount and interest, to wit: In addition to the foregoing, this Commission takes cognizance of

"Principal Amount: P2,000,000.00 Date: 20 January 2009

For the amount received, the undersigned, REYNALDO S. GALENZOGA, with office address at Orient Pearl Mining

34 Section 10 of the SRC 35 Section 10(k) of the SRC 36 Verified Complaint. Annexes "J", "K", and "L"

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et al SEC En Banc Case No. 09-16-410 Page 15 of 18 DECISION

to time designate to the undersigned in writing, in lawful money MILLION PESOS (P2,000,000.00). "Borrower"), promises to pay to the order of BELENE Y. of the Republic of the Philippines, the principal sum of TWO Corporation, 1903-B Tektite West Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City (the LIMSENKHE (the "Lender"), with address at 11 Dagot St. Manresa, Quezon City, or at such other place as the Lender may from time

2 1 Interest. Interest shall accrue on the principal sum due hereunder from the date hereof at the rate of 5% per month. Repayment. Borrower shall pay to the Lender the principal

3 written consent of the Lender and without prepayment be paid at the time of such prepayment. Default. An event of Default shall be deemed to have sum outstanding hereunder, plus accrued interest, 12 repaid at any time, in whole or in part, without the prior interest accrued on the principal amount being prepaid shall months from the date hereof. The Promissory Note may be premium or penalty,upon prior written notice to Lender.All

connection with the enforcement or collection of any amounts due under this Promissory note or which otherwise written notice to borrower, declare immediately due and interest accrued thereon. The Lender may take any action or proceeding at law or in equity which Lender deems advisable to collect and enforce payment of all amounts due under this amounts or acceleration thereof pursuant to an event of default. In addition, and not by way of limitation, in case of an Event of Default, the Borrower hereby expressly consents to the offset by Lender of any payments due Borrower from Lender in an amount equal to all amounts due under this Promissory Note, whether by reason of maturity of such amounts or acceleration thereof pursuant to an Event of Default. The Borrower shall pay all expenses, court costs and reasonable attorney's fees which may be incurred in pay when due any amount of principal or interest due hereunder. In the case of any of (i) an Event of Default, (ii) the death of Borrower, or (iii) the termination of Borrower's employment with Lender, then Lender may, at its option by payable the unpaid principal balance due hereunder and Promissory Note, whether by reason of maturity of such may result out of any Event of Default. xxx" occurred under the Promissory Note if Borrower shall fail to

out the contractual relation of "Lender-Borrower" that the parties agreed The afore-quoted provisions of the Promissory Note clearly spell

Belene Yucoco.ys.Orient Pearl Resources Worldwide,Inc.,et al SEC En Banc Case No. 09-16-410 Page 16 of 18 DECISION

upon and established, which equally defined the nature of their transaction i.e. simple loan. The grant to the Borrower of the option to prepay the principal amount together with the accrued interests as of the date of the prepayment (as well as in an Event of Default), supports this finding.

Relative thereto, this Commission notes the fact that the Office of

conclusion that the transactions entered into by the parties were a simple the City Prosecutor of Quezon City, which dismissed the Complaint of Complainant-Appellant for syndicated estafa, arrived at the same

loan, after reviewing the documents presented in evidence (which are practically the same as in the instant case), thus:

social stature, the nature of the transaction and the amount "The complainant is a businesswoman. Considering her

of money involved, it is reasonable to presume that she exercised adequate care and diligence in studving the

a disputable presumption that a person takes ordinary care of his/her concern. transactions were that of loan, prior to their execution. In fact Rule 131, Section 39d) of the Rules of Evidence provides for Promissory Notes, which clearly indicate that the

Hence, thisOffice cannot subscribe to the

loan, not investment."37 (Emphasis supplied) signed by the corporation was executed. In fact, when the complainant, through her legal counsel, sent respondent 2010, the complainant referred to her transaction as one of complainant's contention that her transaction with the respondents was one of investment. No investment contract Reynaldo Galenzoga a demand letter dated November 8.

were borrowed from her, which were the subject of the checks and the Promissory Notes, were allegedly investments where she expected to receive the returns (in the form of interests) guaranteed by Mr. Galenzoga, this Commission holds that the same cannot be given credence in the light of the parol evidence rule embodied in Section 9 Rule 130 of the Revised Rules on Evidence, which expressly prohibits any by testimony or other evidence purporting to show a different terms party from adding to, or contradicting the terms of a written agreement Anent the allegation of Complainant-Appellee that the monies that

37 Memorandum of Appeal. Annex "D" (see Resolution dated 29 April 2015 in NPS No. XV-03-INV-14J- 10166 issued by the Office of the City Prosecutor of Quezon City)

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et a SEC En Banc Case No. 09-16-410 Page 17 of 18 DECISION

were agreed upon by the parties, which effectively varies the terms of the written contract38, thus:

writing, it is considered as containing all the terms agreed successors in interest, no evidence of such terms other than upon and there can be, between the parties and their the contents of the written agreement. "When the terms of an agreement have been reduced to

Complainant-Appellee relating to her alleged investments in Orient Pearl On the basis thereof, this Commission holds that the allegation of

Mining which were solicited by Mr. Galenzoga, cannot negate the fact that the transactions entered into the parties were a simple loan, as shown by the checks and Promissory Notes. This renders the instant case outside the ambit of the regulatory powers of the Commission as the action for collection of a debt which is due and demandable and/or a possible criminal action is one that is lodged with, and cognizable by the regular courts.

transaction which she entered into with Mr. Galenzoga was a simple loan when she filed a Manifestation informing this Commission that the civil case for sum of money with damages, involving the same transactions the subject of the instant case, has been decided upon in her favor by the Regional Trial Court (Branch 90) of Quezon City.39 This being the case, Complainant-Appellee in fact, actually admitted that the

38 "The "parol evidence rule" forbids any addition to or contradiction of the terms of a wrtten instrument by testimony or other evidence purporting to show that, at or before the execution of the be permitted to adduce evidence to prove alleged practices which, to all purposes, would alter the waived and abandoned. x x x. (Citation omitted) parties' written agreement, other or different terms were agreed upon by the parties, varying the purport of the written contract. When an agreement has been reduced to writing, the parties cannot terms of the written agreement. Whatever is not found in the writing is understood to have been

agreement failed to express the true intent and agreement of the parties considering that the same is also subject to the condition that all pending litigations relative to the subject properties are settled. These rule and principle notwithstanding, the petitioner would have the Court rule that the CTS it executed with the respondents falls within the exceptions, more specifically that the written This argument is untenable

It is well settled that parol evidence can serve the purpose of incorporating into the contract additional contemporaneous conditions, which are not mentioned at all in writing, only if there is fraud or mistake.35 Here, the petitioner's claim that the reason for their failure to pay the full purchase price that such failure was due to fraud or mistake. (Felix Plazo Urban Poor Settlers Community Association, Inc.vs Lapat,Sr.(G.R.No.182409,March 20,2017) 39 Manifestation dated 17 January 2017.Annex "A" was due to the failure of the respondents to settle the pending litigation involving the subject properties is not tenable. Clearly, a perusal of the CTS executed by the parties does not show any provision pertaining to such condition. Also, the petitioner failed to present sufficient evidence to show

Belene Yucoco. vs. Orient Pearl Resources Worldwide, Inc., et al SEC En Banc Case No. 09-16-410 Page 18 of 18 DECISION

Complainant-Appellee has, by her own admission, effectively negated her claim that the instant case involves an investment fraud under the SRC.

dated 16 August 2016) with Attached Memorandum of Appeal filed by Respondents-Appellants Spouses Galenzoga is hereby GRANTED. The Assailed Order of the EIPD is hereby REVERSED AND SET ASIDE. WHEREFORE,premises considered, the Notice of Appeal (Re: Order

SO ORDERED.

Makati City, Philippines.

EMILIO B. AQUINO Chairperson

JAVEYPAUL D.FRANCISCO Commissioner KEXNIT Commissioner K.LEE

KARLOS. BELLO Commissioner MCJIL L BRYANT T. FERNANDEZ Commissioner