Republic of the Philippines

SUPREME COURT
Manila

SPECIAL SECOND DIVISION

G.R. No. 187919               February 20, 2013

RAFAEL H. GALVEZ, and KATHERINE L. GUY, Petitioners, 

vs.
HON. COURT OF APPEALS AND ASIA UNITED BANK, Respondents.

x----------------x

G.R. No. 187979

ASIA UNITED BANK, Petitioner, 

vs.
GILBERT G. GUY, PHILIP LEUNG, KATHERINE L. GUY, RAFAEL H. GALVEZ and EUGENIO H.
GALVEZ, .JR.,Respondents.

x----------------x

G.R. No. 188030

GILBERT G. GUY, PHILIP LEUNG, and EUGENIO H. GALVEZ, JR., Petitioners, 

vs.
ASIA UNITED BANK, Respondents.

RESOLUTION

PEREZ, J.:

We resolve the Motion for Reconsideration filed by petitioner-movants, Rafael H. Galvez and
Katherine L. Guy in G.R. No. 187919, 1 and Gilbert G. Guy, Philip Leung and Eugenio H. Galvez, Jr.
in G.R. No. 1880302 addressed to our consilidated Decision dated 25 April 2012 3 finding probable
cause to charge petitioners of the crime of SYNDICATED ESTAFA under Article 315 (2)(a) in
relation to Presidential Decree No. 1689.

Our consilidated decision read:

WHEREFORE, the Decision of the Court of Appeals dated 27 June 2008 in CA-G.R. SP No. 97160
is hereby AFFIRMED with MODIFICATION that Gilbert G. Guy, Rafael H. Galvez, Philip Leung,
Katherine L. Guy and Eugenio H. Galvez, Jr. be charged for SYNDICATED ESTAFA under Article
315 (2) (a) of the Revised Penal Code in relation to Section 1 of Presidential Decree No. 1689. 4

The Motion for Reconsideration

In the main, petitioners submit the following arguments in support of their motion for reconsideration:
First, the petitioners cannot be charged for estafa whether simple or syndicated for the element of
deceit was absent in the transactions that transpired between the petitioners and respondent. This is
a case of collection of sum of money, hence, civil in nature.

Second, the petitioners cannot be charged for syndicated estafa defined in Presidential Decree No.

1689 because they did not solicit funds from the general public, an indispensable element for
syndicated estafa to prosper.5

In our 25 April 2012 Decision, we have more than amply discussed the petitioners’ arguments,
specifically, as to the first issue whether deceit was present in the transaction as to warrant
prosecution for the crime of estafa. If only to emphatically write finis to this aspect of the case, we
examine again the petitioners’ arguments vis-à-vis this Court’s ruling.

The facts

In 1999, Radio Marine Network Inc. (RMSI) claiming to do business under the name Smartnet
Philippines6 and/or Smartnet Philippines, Inc. (SPI),7 applied for an Omnibus Credit Line for various
credit facilities with Asia United Bank (AUB). To induce AUB to extend the Omnibus Credit Line,
RMSI, through its directors and officers, presented its Articles of Incorporation with its 400-peso
million capitalization and its congressional telecom franchise. RMSI was represented by the
following officers and directors occupying the following positions:

Gilbert Guy - Exec. V-Pres./Director

Philip Leung - Managing Director
Katherine Guy - Treasurer
Rafael Galvez - Executive Officer
Eugenio Galvez, Jr. - Chief Financial
Officer/Comptroller

Satisfied with the credit worthiness of RMSI, AUB granted it a ₱250 Million Omnibus Credit Line,
under the name of Smartnet Philippines, RMSI’s Division. On 1 February 2000, the credit line was
increased to ₱452 Million pesos after a third-party real estate mortgage by Goodland Company, Inc.,
an affiliate of Guy Group of Companies, in favor of Smartnet Philippines, was offered to the bank.
Simultaneous to the increase of the Omnibus Credit Line, RMSI submitted a proof of authority to
open the Omnibus Credit Line and peso and dollar accounts in the name of Smartnet Philippines,
Inc., which Gilbert Guy, et al., represented as a division of RMSI, as evidenced by the letterhead
used in its formal correspondences with the bank and the financial audit made by SGV & Co., an
independent accounting firm. Attached to this authority was the Amended Articles of Incorporation of
RMSI, doing business under the name of Smartnet Philippines, and the Secretary’s Certificate of SPI
authorizing its directors, Gilbert Guy and Philip Leung to transact with AUB. 8 Prior to this major
transaction, however, and, unknown to AUB, while RMSI was doing business under the name of
Smartnet Philippines, and that there was a division under the name Smartnet Philippines, Gilbert
Guy, et al. formed a subsidiary corporation, the SPI with a paid-up capital of only ₱62,500.00.

Believing that SPI is the same as Smartnet Philippines - the division of RMSI - AUB granted to it,
among others, Irrevocable Letter of Credit No. 990361 in the total sum of $29,300.00 in favor of
Rohde & Schwarz Support Centre Asia Ptd. Ltd., which is the subject of these consolidated petitions.
To cover the liability of this Irrevocable Letter of Credit, Gilbert Guy executed Promissory Note No.
010445 in behalf of SPI in favor of AUB. This promissory note was renewed twice, once, in the name
of SPI (Promissory Note No. 011686), and last, in the name of Smartnet Philippines under
Promissory Note No. 136131, bolstering AUB’s belief that RMSI’s directors and officers consistently
treated this letter of credit, among others, as obligations of RMSI.

When RMSI’s obligations remained unpaid, AUB sent letters demanding payments. RMSI denied
liability contending that the transaction was incurred solely by SPI, a corporation which belongs to
the Guy Group of Companies, but which has a separate and distinct personality from RMSI. RMSI
further claimed that while Smartnet Philippines is an RMSI division, SPI, is a subsidiary of RMSI, and
hence, is a separate entity.

Aggrieved, AUB filed a case of syndicated estafa under Article 315 (2)(a) of the Revised Penal Code
in relation to Section 1 of Presidential Decree No. 1689 against the interlocking directors of RMSI
and SPI, namely, Gilbert G. Guy, Rafael H. Galvez, Philip Leung, Katherine L. Guy, and Eugenio H.
Galvez, Jr., before the Office of the City Prosecutor of Pasig City.

AUB alleged that the directors of RMSI deceived it into believing that SPI was a division of RMSI,
only to insist on its separate juridical personality later on to escape from its liabilities with AUB. AUB
contended that had it not been for the fraudulent scheme employed by Gilbert Guy, et al., AUB
would not have parted with its money, which, including the controversy subject of this petition,
amounted to hundreds of millions of pesos.

Our Ruling

We already emphasized in the 25 April 2012 Decision that "this controversy could have been just a
simple case for collection of sum of money had it not been for the sophisticated fraudulent scheme
which Gilbert Guy, et al., employed in inducing AUB to part with its money." 9 Our Decision
meticulously discussed how we found probable cause, a finding affirming that of the prosecutor and
the Court of Appeals, to indict petitioners for the crime of estafa under Article 315 (2)(a) of the
Revised Penal Code.10 We noted there and we now reiterate that it was neither the petitioners’ act of
borrowing money and not paying it, nor their denial thereof, but their very act of deceiving AUB in
order for the latter to part with its money that is sought to be penalized. Thus:

x x x As early as the Penal Code of Spain, which was enforced in the Philippines as early as 1887
until it was replaced by the Revised Penal Code in 1932, the act of fraud through false pretenses or
similar deceit was already being punished. Article 335 of the Penal code of Spain punished a person
who defrauded another ‘by falsely pretending to possess any power, influence, qualification,
property, credit, agency or business, or by means of similar deceit.’ 11

Under Article 315 (2)(a) of the Revised Penal Code, estafa is committed by any person who shall
defraud another by, among others, false pretenses or fraudulent acts executed prior to or
simultaneous with the commission of fraud, i.e., by using a fictitious name, falsely pretending to
possess power, influence, qualifications, property, credit, agency, business or imaginary
transactions; or by means of other similar deceits.

Underscoring the aforesaid discussion, we found that:

First, Gilbert Guy, Philip Leung, Katherine Guy, Rafael Galvez and Eugene Galvez, Jr., interlocking
directors of RMSI and SPI, represented to AUB in their transactions that Smartnet Philippines and
SPI were one and the same entity. While Eugene Galvez, Jr. was not a director of SPI, he actively
dealt with AUB in his capacity as RMSI’s Chief Financial Officer/Comptroller by falsely representing
that SPI and RMSI were the same entity. Gilbert Guy, Philip Leung, Katherine Guy, Rafael Galvez,
and Eugene Galvez, Jr. used the business names Smartnet Philippines, RMSI, and SPI
interchangeably and without any distinction. They successfully did this by using the confusing
similarity of RMSI’s business name, i.e., Smartnet Philippines – its division, and, Smartnet
Philippines, Inc. – the subsidiary corporation. Further, they were able to hide the identity of SPI, by
having almost the same directors as that of RMSI. In order to let it appear that SPI is the same as
that of Smartnet Philippines, they submitted in their application documents of RMSI, including its
Amended Articles of Incorporation, third-party real estate mortgage of Goodland Company in favor of
Smartnet Philippines, and audited annual financial statement of SGV & Co. Gilbert Guy, et al. also
used RMSI letterhead in their official communications with the bank and the contents of these official
communications conclusively pointed to RMSI as the one which transacted with the bank.

These circumstances are all indicia of deceit. Deceit is the false representation of a matter of fact
whether by words or conduct, by false or misleading allegations, or by concealment of that which
should have been disclosed which deceives or is intended to deceive another so that he shall act
upon it to his legal injury. [Citation omitted]

Second, the intent to deceive AUB was manifest from the start. Gilbert Guy et al.[,] laid down first all
the necessary materials they need for this deception before defrauding the bank by first establishing
Smartnet Philippines as a division of Radio Marine under which Radio Marine Network Inc. operated
its business. Then it organized a subsidiary corporation, the SPI, with a capital of only ₱62,000.00.
Later, it changed the corporate name of Radio Marine Network Inc. into RMSI.

Undoubtedly, deceit here was conceived in relation to Gilbert Guy, et al.’s transaction with AUB.
There was a plan, documented in corporation’s papers, that led to the defraudation of the bank. The
circumstances of the directors’ and officers’ acts in inserting in Radio Marine the name of Smartnet;
the creation of its division – Smartnet Philippines; and its registration as business name as Smartnet
Philippines with the Department of Trade and Industry, together with the incorporation of its
subsidiary, the SPI, are indicia of a pre-conceived scheme to create this elaborate fraud, victimizing
a banking institution, which perhaps, is the first of a kind in Philippine business.

xxxx

Third, AUB would not have granted the Irrevocable Letter of Credit No. 990361, among others, had
it known that SPI which had only ₱62,500.00 paid-up capital and no assets, is a separate entity and
not the division or business name of RMSI. x x x.

xxxx

It is true that ordinarily, in a letter of credit transaction, the bank merely substitutes its own promise
to pay for the promise to pay of one of its customers, who in turn promises to pay the bank the
amount of funds mentioned in the letters of credit plus credit or commitments fees mutually agreed
upon. Once the issuing bank shall have paid the beneficiary after the latter’s compliance with the
terms of the letter of credit, the issuing bank is entitled to reimbursement for the amount it paid under
the letter of credit. [Citation omitted]

In the present case, however, no reimbursement was made outright, precisely because the letter of
credit was secured by a promissory note executed by SPI. The bank would have not agreed to this
transaction had it not been deceived by Gilbert Guy, et al. into believing the RMSI and SPI were one
and the same entity. Guy and his cohorts’ acts in (1) securing the letter of credit guaranteed by a
promissory note in behalf of SPI; and, (2) their act of representing SPI as RMSI’s Division,
were indicia of fraudulent acts because they fully well know, even before transacting with the bank,
that: (a) SPI was a separate entity from Smartnet Philippines, the RMSI’s Division, which has the
Omnibus Credit Line; and (b) despite this knowledge, they misrepresented to the bank that SPI is
RMSI’s division. Had it not [been] for this false representation, AUB would [not] have granted SPI’s
letter of credit to be secured with a promissory note because SPI as a corporation has no credit line
with AUB and SPI by its own, has no credit standing.

Fourth, it is not in dispute that the bank suffered damage, which, including this controversy,
amounted to hundreds of millions of pesos.12 (Emphasis supplied)

We revisit, however, our ruling as to the second issue, i.e., whether or not the petitioners may be
charged and tried for syndicated estafa under Presidential Decree No. 1689.

While this case is all about finding probable cause to hold the petitioners for trial for
syndicated estafa, and, while, without doubt, a commercial bank is covered by Presidential Decree
No. 1689, as deduced from our pronouncements in People v. Balasa,13 People v.
Romero,14 and People v. Menil, Jr.,15 cases where the accused used the legitimacy of the
entities/corporations to perpetrate their unlawful and illegal acts, a careful re-evaluation of the issues
indicate that while we had ample reason to look into whether funds from commercial bank may be
subject of syndicated estafa, the issue of who may commit the crime should likewise be considered.

Section 1 of Presidential Decree No. 1689 provides:

Section 1. Any person or persons who shall commit estafa or other forms of swindling as defined in
Article 315 and 316 of the Revised Penal Code, as amended, shall be punished by life imprisonment
to death if the swindling (estafa) is committed by a syndicate consisting of five or more persons
formed with the intention of carrying out the unlawful or illegal act, transaction, enterprise or scheme,
and the defraudation results in the misappropriation of moneys contributed by stockholders, or
members of rural banks, cooperative, "samahang nayon(s)", or farmers’ associations, or of funds
solicited by corporations/associations from the general public.

When not committed by a syndicate as above defined, the penalty imposable shall be reclusion
temporal to reclusion perpetua if the amount of the fraud exceeds 100,000 pesos.

Thus, the elements of syndicated estafa are: (a) estafa or other forms of swindling as defined in

Article 315 and 316 of the Revised Penal Code is committed; (b) the estafa or swindling is
committed by a syndicate of five or more persons; and (c) defraudation results in the
misappropriation of moneys contributed by stockholders, or members of rural banks,
cooperatives, "samahang nayon(s)," or farmers’ associations or of funds solicited by
corporations/associations from the general public.

On review of the cases applying the law, we note that the swindling syndicate used the association
that they manage to defraud the general public of funds contributed to the association. Indeed,
Section 1 of Presidential Decree No. 1689 speaks of a syndicate formed with the intention of
carrying out the unlawful scheme for the misappropriation of the money contributed by the members
of the association. In other words, only those who formed and manage associations that receive
contributions from the general public who misappropriated the contributions can commit
syndicated estafa.

Gilbert Guy, et al., however, are not in any way related either by employment or ownership to AUB.
They are outsiders who, by their cunning moves were able to defraud an association, which is the
AUB. Theirs would have been a different story, had they been managers or owners of AUB who
used the bank to defraud the public depositors.
This brings to fore the difference between the case of Gilbert Guy et al., and that of People v.
Balasa, People v. Romero, and People v. Menil, Jr.

In People v. Balasa, the accused formed the Panata Foundation of the Philippines, Inc., a non-

stock/non-profit corporation and the accused managed its affairs, solicited deposits from the public
and misappropriated the same funds.

We clarified in Balasa that although, the entity involved, the Panata Foundation, was not a rural
bank, cooperative, samahang nayon or farmers’ association, it being a corporation, does not take
the case out of the coverage of Presidential Decree No. 1689. Presidential Decree No. 1689’s third
"whereas clause" states that it also applies to other "corporations/associations operating on funds
solicited from the general public." It is this pronouncement about the coverage of
"corporations/associations" that led us to the ruling in our 25 April 2012 Decision that a commercial
bank falls within the coverage of Presidential Decree No. 1689. We have to note though, as we do
now, that the Balasa case, differs from the present petition because while in Balasa, the offenders
were insiders, i.e., owners and employees who used their position to defraud the public, in the
present petition, the offenders were not at all related to the bank. In other words, while in Balasa the
offenders used the corporation as the means to defraud the public, in the present case, the
corporation or the bank is the very victim of the offenders.

Balasa has been reiterated in People v. Romero, where the accused Martin Romero and Ernesto
Rodriguez were the General Manager and Operation Manager, respectively, of Surigao San Andres
Industrial Development Corporation, a corporation engaged in marketing which later engaged in
soliciting funds and investments from the public. 1âwphi1

A similar reiteration was by People v. Menil, Jr., where the accused Vicente Menil, Jr. and his wife
were proprietors of a business operating under the name ABM Appliance and Upholstery. Through
ushers and sales executives, the accused solicited investments from the general public and
thereafter, misappropriated the same.

The rulings in Romero and Menil, Jr. further guide us in the present case.

Notably, Romero and Menil, Jr. applied the second paragraph of Section 1 of Presidential Decree
No. 1689 because the number of the accused was below five, the minimum needed to form the
syndicate.

The second paragraph, Section 1 of Presidential Decree No. 1689 states:

When not committed by a syndicate as above defined, the penalty imposable shall be reclusion
temporal to reclusion perpetua if the amount of fraud exceeds 100,000 pesos. 1âwphi1

Effectively, Romero and Menil, Jr. read as written the phrase "when not committed by a syndicate as

above defined," such that, for the second paragraph of Section 1 to apply the definition of swindling
in the first paragraph must be satisfied: the offenders should have used the association they formed,
own or manage to misappropriate the funds solicited from the public.

In sum and substance and by precedential guidelines, we hold that, first, Presidential Decree No.
1689 also covers commercial banks; second, to be within the ambit of the Decree, the swindling
must be committed through the association, the bank in this case, which operate on funds solicited
from the general public; third, when the number of the accused are five or more, the crime is
syndicated estafa under paragraph 1 of the Decree; fourth, if the number of accused is less than five
but the defininf element of the crime under the Decree is present, the second paragraph of the
Decree applies (People v. Romero, People v. Balasa); fifth, the Decree does not apply regardless of
the number of the accused, when (a) the entity soliciting funds from the general public is the victim
and not the means through which the estafa is committed, or (b) the offenders are not owners or
employees who used the association to perpetrate the crime, in which case, Article 315 (2)(a) of the
Revised Penal Code applies.

The present petition involves an estafa case filed by a commercial bank as the offended party
against the accused who, as clients, defrauded the bank.

WHEREFORE, we MODIFY our 25 April 2012 Decision and RULE that Gilbert G. Guy, Rafael H.
Galvez, Philip Leung, Katherine L. Guy and Eugenio H. Galvez, Jr., be charged for SIMPLE
ESTAFA under Article 315 (2)(a) of the Revised Penal Code.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice
Acting Chairperson

MARIA LOURDES P.A. SERENO MARIANO C. DEL CASTILLO*

Chief Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

ARTURO D. BRION
Associate Justice
Acting Chairperson, Special Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I
certify that the conclusions in the above Resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice
Footnotes

* Associate Justice Mariano C. Del Castillo was designated as additional member in lieu of
Associate Justice Antonio T. Carpio per Raffle dated 13 February 2013.

1
 Rollo in G.R. No. 187979. pp . 716-763.

2
 Rollo in G.R. No. 188030, pp. 736-783.

3
 Rafael H. Galvez and Katherine L. Guy v. Court of Appeals and Asia United Bank (G.R. No.
187919) Asia United Bank v. Gilbert G. Guy, Philip Leung, Katherine L. Guy, Rafael H.
Galvez and Eugenio H. Galvez, Jr. (G.R. No. 187979) Gilbert G. Guy, Philip Leung and
Eugenio H. Galvez, Jr. v. Asia United Bank (G.R. No. 188030) Penned by Associate Justice
Jose Portugal Perez with Associate Justices Antonio T. Carpio, Arturo D. Brion now Chief
Justice Maria Lourdes P.A. Sereno and Bienvenido L. Reyes, concurring Rollo in G.R. No.
188030, pp. 714-735, Rollo in G.R. No. 187919 pp. 696-715, Rollo in G.R. No. 187979, pp.
628-696.

4
 Rollo in G.R. No. 188030, pp. 733-734.

5
 Id. at 742-743.

6
 Id. at 111.

7
 In Civil Case No. 68366, RMSI filed a complaint, claiming that it was doing business under
the name Smartnet Philippines and Smartnet Philippines, Inc. Id at 486.

8
 Id. at 472.

9
 Id. at 723.

10
 Article 315 (2)(a) of the Revised Penal Code provides:

Art. 315. Swindling (estafa). – any person who shall defraud another by any of the
means mentioned herein below x x x:

xxxx

2. By means of any of the following false pretenses or fraudulent acts executed

prior to or simultaneous with the commission of the fraud:

(a) By using a fictitious name, or falsely pretending to possess power, influence,

qualifications, property, credit, agency, business or imaginary transactions, or by
means of other similar deceits. (Emphasis supplied)

 Rollo in G.R. No. 188030, p. 692. See Lozano v. Martinez, G.R. No. 63419, 18 December
11

1986, 146 SCRA 323, 332.

12
 Rollo in G.R. No. 188030, pp. 724-728.
 13
 356 Phil. 362 (1998).

14
 365 Phil. 531 (1999).

15
 394 Phil. 433 (2000).

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