FACTS:

In 1999, Radio Marine Network (Smartnet) Inc. (RMSI) applied for an Omnibus Credit Line with Asia United Bank (AUB). RMSI presented its Articles of Incorporation with a 400 million capitalization and a congressional telecom franchise. AUB granted a 250 million Omnibus Credit Line to RMSI's division, Smartnet Philippines. Later on, RMSI submitted proof of authority to open the credit line and peso and dollar accounts in the name of Smartnet Philippines. AUB believed that Smartnet Philippines was a division of RMSI.

AUB granted several credit facilities to Smartnet Philippines, including an Irrevocable Letter of Credit No. 990361 in favor of Rohde & Schwarz Support Centre Asia Ptd. Ltd. When RMSI's obligations remained unpaid, AUB demanded payment and RMSI denied liability, claiming that the transaction was incurred solely by its subsidiary corporation, Smartnet Philippines, Inc.

AUB filed a case of syndicated estafa against the directors of RMSI and Smartnet Philippines, alleging that they deceived AUB into believing that Smartnet Philippines was a division of RMSI and later on insisted on its separate juridical personality to escape liability.

The Office of the City Prosecutor found probable cause to indict the directors of RMSI for estafa. The DOJ reversed the City Prosecutor's resolution and ordered the dismissal of the estafa charges. The CA partially granted AUB's petition and found probable cause for estafa.

The directors of RMSI filed petitions before the Supreme Court. The issue is whether there is probable cause to prosecute the directors of RMSI for syndicated estafa based on the fraudulent acts or means employed to deceive AUB into releasing the proceeds of the letter of credit.

ISSUES:

1. Whether the accused committed estafa by means of deceit under Article 315 (2) (a) of the Revised Penal Code.

2. Whether the accused used false pretenses and fraudulent acts to deceive the offended party and induce them to part with their money.

3. Whether the transaction in question is a loan transaction or a letter of credit transaction.

4. Whether the lack of capitalization of SPI is immaterial and irrelevant in a letter of credit transaction.

5. Whether there is probable cause to hold Gilbert Guy, et al. for trial for the crime of estafa.

6. Whether the law on syndicated estafa applies to the case at bar.

7. Whether the accused committed the elements of syndicated estafa.

RULING:

1. The accused committed estafa by means of deceit under Article 315 (2) (a) of the Revised Penal Code.

2. The accused used false pretenses and fraudulent acts to deceive the offended party and induce them to part with their money.

3. The transaction in question is a letter of credit transaction, not a loan transaction. This is because the transaction was intended to facilitate the importation of goods by SPI. In a letter of credit transaction, the seller gets paid only if it delivers the documents of title over the goods to the bank which issued the letter of credit, while the buyer/importer acquires title to the goods once it reimburses the issuing bank. The transaction secures the obligation of the buyer/importer to the issuing bank.

4. The lack of capitalization of SPI is not immaterial and irrelevant in a letter of credit transaction. While 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, in this case, no reimbursement was made outright because the letter of credit was secured by a promissory note executed by SPI. The bank would not have agreed to this transaction had it not been deceived by Gilbert Guy, et al. into believing that RMSI and SPI were one and the same entity. Gilbert Guy, et al.'s act of securing the letter of credit guaranteed by a promissory note in behalf of SPI and their act of representing SPI as RMSI's Division were indicia of fraudulent acts. Had it not been for this false representation, the bank would not have granted SPI's letter of credit because SPI as a corporation has no credit line with the bank and SPI by itself has no credit standing.

5. There is probable cause to hold Gilbert Guy, et al. for trial for the crime of estafa under Article 315 (2)(a) of the Revised Penal Code. AUB's voluminous documents establish that there is sufficient ground to engender a well-grounded belief that a crime has been committed and that Gilbert Guy, et al. are probably guilty thereof. This Court's finding of probable cause is grounded on fraud committed through deceit in order to deceive the bank and induce it to part with its money.

6. The law on syndicated estafa applies to the case at bar. The elements of syndicated estafa under Section 1 of PD No. 1689 are: (a) estafa or other forms of swindling as defined in Artilce 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.

7. The accused committed the elements of syndicated estafa. They formed a syndicate consisting of five or more persons with the intention of carrying out the unlawful act of misrepresenting a corporation as a mere division and applying for a letter of credit secured by a promissory note with no credit line. The defraudation resulted in the misappropriation of money solicited from the general public through the bank.

PRINCIPLES:

• 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.

• Fraud, in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust, or confidence justly reposed, resulting in damage to another, or by which an undue and unconscientious advantage is taken of another.

• Estafa by means of deceit requires the presence of false pretense, fraudulent act, or fraudulent means made or executed prior to or simultaneously with the commission of the fraud.

• The offended party must rely on the false pretense, fraudulent act, or fraudulent means and be induced to part with his money or property.

• Damage suffered by the offended party is an essential element of estafa by means of deceit.

• In a letter of credit transaction, the seller gets paid only if it delivers the documents of title over the goods to the bank which issued the letter of credit, while the buyer/importer acquires title to the goods once it reimburses the issuing bank. The transaction secures the obligation of the buyer/importer to the issuing bank.

• The lack of capitalization of a corporation may be relevant and material in a letter of credit transaction where the letter of credit is secured by a promissory note executed by the corporation.

• A finding of probable cause in a preliminary investigation only needs to rest on evidence showing that more likely than not, the accused committed the crime. It is not the occasion for the full and exhaustive display of the parties' evidence. The validity and merits of a party's accusation or defense, as well as admissibility of testimonies and evidence, are better ventilated during the trial proper.

• Syndicated estafa requires the commission of estafa or other forms of swindling by a syndicate of five or more persons, with defraudation resulting in the misappropriation of funds solicited from the general public (Section 1, PD No. 1689).

• A syndicate is a group formed with the intention of carrying out an unlawful or illegal act, transaction, enterprise, or scheme (Section 1, PD No. 1689).

• A bank, as a corporation whose funds come from the general public, is within the coverage of PD No. 1689 (Section 3.1, General Banking Law).