G.R. No. 178947 - De Los Santos-Dio vs. Court of Appeals

Case Summary (G.R. No. 178947)

Petitioner, Respondent and Procedural Posture

Two consolidated petitions for review on certiorari were filed with the Supreme Court: one by Dio (on behalf of H.S. Equities and Westdale) and one by the People of the Philippines. These challenged the Court of Appeals’ affirmation of the Regional Trial Court’s dismissal of two criminal informations for estafa against Desmond for alleged lack of probable cause.

Key Dates

Material transactions and procedural milestones contained in the record: investments and promissory notes in 2001–2002; Subscription Agreement (January 18, 2002); Subscription and Shareholders Agreement (March 12, 2002); Westdale investment (June 2002); criminal complaints filed (April 19, 2004); City Prosecutor’s finding of probable cause (August 26, 2004); RTC dismissal (Order dated October 21, 2004); Court of Appeals decision affirming dismissal (November 8, 2006) and denial of reconsideration (July 19, 2007); Supreme Court decision reversing and reinstating informations (June 26, 2013).

Applicable Law and Constitutional Provision

1987 Philippine Constitution (applicable because the Supreme Court decision is dated 2013): Article III, Section 2 requirement that “no warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce.”
Revised Rules of Criminal Procedure, Rule 112, Section 5(a) (formerly cited as Section 6(a)): authorizes the trial court, within 10 days from filing of the complaint or information, to evaluate the prosecutor’s resolution and supporting evidence and permits three responses: (a) issue a warrant if probable cause is found; (b) immediately dismiss if the evidence on record clearly fails to establish probable cause; or (c) order the prosecutor to present additional evidence if there is doubt.
Penal law provisions invoked in the informations: Article 315(2)(a) (estafa by false pretenses) and Article 315(1)(b) (estafa by misappropriation/abuse of confidence) of the Revised Penal Code; PD No. 1689 invoked by the prosecutor in the finding of probable cause.

Core Facts Alleged by Private Complainant

Dio (on behalf of H.S. Equities and Westdale) invested a total of US$1,150,000 (HS Equities) and an additional US$1,000,000 (Westdale) in SBMEI projects after representations by Desmond, including a business plan projecting rapidly increasing attendance, revenues, and high investor returns.
SBMEI’s Business Plan and other documents purportedly represented capital, marine mammal valuations, and financing capacity; HS Equities received minority-protection rights and Dio was elected director and treasurer but was not issued stock certificates.
Dio later discovered alleged financial irregularities: SBMEI losses, false entries/overvaluation of marine mammals, undisclosed amounts of JV China’s investment, and unauthorized disbursements from Westdale’s special account totaling US$72,362.78 used for Ocean Adventure operating expenses. Dio suspended further releases; she was later ousted as director and treasurer.
Dio filed two criminal complaints for estafa: (1) estafa by false pretenses for US$1,150,000 (Criminal Case No. 516-2004) and (2) estafa with abuse of confidence/misappropriation for US$1,000,000 (Criminal Case No. 515-2004).

Prosecutor’s Finding and Filing of Informations

The City Prosecutor conducted a preliminary investigation and, on August 26, 2004, found probable cause to indict Desmond for estafa under Article 315(1)(b) and 315(2)(a) (and referenced PD No. 1689), concluding that Desmond made misrepresentations regarding his capacity and resources that induced the investments and that Dio suffered prejudice when she could not recover her money. Criminal informations were subsequently filed with the RTC.

RTC’s Judicial Determination and Grounds for Dismissal

Upon Desmond’s motion for judicial determination of probable cause, the RTC evaluated the prosecutor’s resolution and the supporting evidence and dismissed the informations for lack of probable cause. The RTC’s principal findings were: (1) alleged misrepresentations were contained in SBMEI’s printed business plan and were not shown to be personal representations by Desmond; the record lacked evidence that Desmond personally made assurances as to his power, influence, or credit with SBMA or financial institutions; (2) the valuation of marine mammals reflected independent valuation documents (e.g., Beijing Landa Aquarium) and the complainant failed to contradict that valuation; (3) alleged misappropriation (the withdrawals from the Westdale special account) lacked proof that the funds were earmarked exclusively for specific payments or that Desmond personally authorized the payments; funds appeared co-mingled in corporate coffers and withdrawals were authorized by the designated signatory (Paglicawan) and reflected purposes such as taxes and salaries; (4) corporate acts (payment of salaries, utilities) require board action and could not be presumptively attributed solely to Desmond. On that basis, the RTC denied issuance of warrant of arrest and dismissed the cases.

Court of Appeals’ Reasoning

The Court of Appeals affirmed the RTC. It agreed that the statements in the business plan were general enticements to investors and were not shown to have been made personally by Desmond, nor were they shown to be false representations attributed to him. The CA also accepted that SBMEI had invested significantly in buildings and equipment, possessed marine mammals, and had a lease with SBMA; documentary evidence (auditor’s report) supported these claims, undermining the complainants’ assertions of misrepresentation or overvaluation. Regarding the alleged conversion of Westdale funds, the CA emphasized the existence of the special-account controls (multiple signatories including a Westdale-designated employee) and found documentary vouchers indicating legitimate purposes (taxes, salaries). The CA concluded the record did not adequately show that Desmond personally misappropriated funds or that conversion occurred to Westdale’s prejudice.

Supreme Court’s Legal Analysis: Standard for Judicial Determination of Probable Cause

The Supreme Court analyzed the distinct roles of the prosecutor (executive determination of sufficiency to file information) and the judge (judicial determination of probable cause for issuance of arrest warrant). It reiterated constitutional and Rule 112 mandates: a judge must personally evaluate the prosecutor’s resolution and supporting evidence; the judge may (a) issue a warrant if probable cause exists, (b) immediately dismiss the case if the evidence on record clearly fails to establish probable cause, or (c) order additional evidence if doubt exists. The Court emphasized the narrowness of the judge’s power to dismiss: dismissal is proper only in clear-cut cases where the record facts are uncontroverted and unmistakably negate the elements of the crime charged. Where essential facts remain controverted or the evidence is merely doubtful or incomplete, dismissal is inappropriate; the case must proceed to full trial so factual disputes can be reso

Case Syllabus (G.R. No. 178947)

Parties and Caption

Petitioners: Virginia De Los Santos-Dio (Dio), in two capacities: (a) as majority stockholder of H.S. Equities, Ltd. (HS Equities) and authorized representative of Westdale Assets, Ltd. (Westdale); and (b) as private complainant/intervenor in CA proceedings.
Respondents: (a) The Honorable Court of Appeals (CA); (b) Judge Ramon S. Caguioa, in his capacity as Presiding Judge of Branch 74, Regional Trial Court (RTC), Olongapo City; and (c) Timothy J. Desmond (Desmond), Chairman and CEO of Subic Bay Marine Exploratorium, Inc. (SBMEI).
Related petition: G.R. No. 179079 captioned People of the Philippines, the petitioner, vs. Timothy J. Desmond, respondent.
Decision rendered by the Supreme Court on June 26, 2013, reported at 712 Phil. 288.

Case Background and Nature of the Proceedings

The petitions for review on certiorari were consolidated and attack: (a) CA Decision dated November 8, 2006 in CA-G.R. SP No. 88285; and (b) CA Resolution dated July 19, 2007, both of which affirmed the RTC's dismissal of criminal informations for estafa filed against Timothy J. Desmond for lack of probable cause.
The Supreme Court consolidated the challenges arising from the private complainant (Dio/HS Equities/Westdale) and the People of the Philippines (prosecutor) seeking reinstatement of the criminal informations.

Factual Background — Introduction and Business Relationship

In 2001, Dio (as majority stockholder/authorized representative) was introduced to Desmond, who was the Chairman and CEO of SBMEI and authorized representative of Active Environments, Inc. and JV China, Inc. (JV China), the majority shareholder of SBMEI.
After discussions on possible ventures, Dio, on behalf of HS Equities, invested a total of US$1,150,000.00 in SBMEI's Ocean Adventure Marine Park (Ocean Adventure), a marine theme park to be built in Subic Bay Freeport Zone to showcase live performances of false-killer whales and sea lions.
Dio alleged that Desmond represented SBMEI as having capital of US$5,500,000.00 inclusive of the marine mammals' value and guaranteed substantial returns on investment.
Desmond presented a Business Plan projecting: (a) attendance growth from 271,192 (2001) to 386,728 (2006) and revenues rising from US$4,420,000.00 to US$7,290,000.00; (b) early investors reaping annual returns of 23% in 2001 rising to 51% in 2006; and (c) fully priced shares yielding returns from 19% (2001) to 42% (2006).

Investments, Agreements and Corporate Positions

On January 18, 2002, a Subscription Agreement was executed by Desmond for SBMEI and JV China, and by Dio for HS Equities. No Certificate of Stock was issued to HS Equities or Dio.
HS Equities was expressly granted minority protection rights in a Subscription and Shareholders Agreement dated March 12, 2002, including a provision that the subscriber’s nominee be elected Treasurer/Chief Financial Officer who may not be removed without the subscriber’s affirmative vote.
Dio was elected as a member of SBMEI’s Board of Directors and appointed Treasurer.
Two Investor’s Convertible Promissory Notes were executed covering HS Equities’ infusion of a total of US$1,000,000.00 for purchase of machinery, equipment and materials for Ocean Adventure (one dated April 4, 2001 and another dated May 8, 2001).
In June 2002, Dio, on behalf of Westdale, invested another US$1,000,000.00 in the Miracle Beach Hotel Project (Miracle Beach), a separate venture for a resort adjoining Ocean Adventure, with an agreement that the investment would be used to settle SBMEI’s P40,000,000.00 loan to First Metro Investment Corporation and to construct 48 lodging units/cabanas.

Disputed Use of Miracle Beach Funds and Discovery of Alleged Irregularities

When SBMEI presented the subscription agreement for Westdale’s investment, it contained a clause allowing "funds in the Subscription Bank Account" to be used for "funding of Ocean Adventure's Negative Cash Flow not exceeding [US$200,000.00]," which conflicted with Westdale’s exclusive purpose; Dio refused to sign.
Dio later claimed SBMEI had no capacity to deliver on Desmond’s guarantees and that SBMEI was incurring losses of P62,595,216.00 as of 2001.
Dio alleged false entries in company books/financial statements, specifically overvaluation of marine animals and nondisclosure of JV China’s true investment, prompting her to call for an audit investigation.
Dio discovered that without her knowledge and consent, Desmond made disbursements from Westdale’s special account (meant only for Miracle Beach expenditures) and diverted a total of US$72,362.78 for Ocean Adventure operating expenses.
When Desmond refused to execute an undertaking to return the diverted funds, Dio, as SBMEI Treasurer, suspended release of remaining special account funds. Dio was later ousted as Director and Treasurer of SBMEI.

Criminal Complaints Filed; Nature of Charges and Statutory Bases

On April 19, 2004, after her removal, Dio filed two criminal complaints for estafa: (a) by false pretenses under Article 315(2)(a) of the Revised Penal Code (RPC); and (b) with unfaithfulness/abuse of confidence through misappropriation or conversion under Article 315(1)(b) of the RPC. The complaints were docketed as IS Nos. 04-M-992 and 04-M-993 at the Olongapo City Prosecutor’s Office.
The City Prosecutor found probable cause in a Resolution dated August 26, 2004, specifically finding: (1) Desmond represented he had necessary influence, expertise and resources though he never had the capital for the project; and (2) Dio was induced to invest US$1,150,000.00 and US$1,000,000.00 to her company’s damage and prejudice.
The City Prosecutor concluded the elements of the crimes were established and opined that the defraudation involved funds solicited from Dio as a member of the general public contrary to public interest, warranting indictment for estafa under Article 315(1)(b) and (2)(a) in relation to PD No. 1689.
Corresponding criminal informations were filed in RTC Olongapo City, Branch 74 as Criminal Case Nos. 516-2004 and 515-2004.

Accusatory Portions of the Criminal Informations (Textual Allegations)

Criminal Case No. 516-2004 (H.S. Equities / US$1,150,000.00)
- Alleges Desmond, as officer of SBMEI, by deceit and fraudulent representations that he had expertise, qualifications, resources, influence and credit with SBMA and financing institutions, induced HS Equities (represented by Dio) to invest US$1,150,000.00; once in possession, he misapplied, converted and misappropriated same to personal use causing damage equivalent to Php57,500,000.00 (computed at Php50.00 to US$1.00).
Criminal Case No. 515-2004 (Westdale / US$1,000,000.00)
- Alleges Desmond received in trust US$1,000,000.00 from Westdale (represented by Dio) to pay SBMEI’s loan and fund Miracle Beach but misapplied, misappropriated and converted the money for his own use, failing to account or return despite demands, causing damage equivalent to Php50,000,000.00 (computed at Php50.00 to US$1.00).

Pre-Trial Motions by Respondent (Desmond)

Desmond filed a Motion for Reconsideration and Motion to Withdraw Filed Informations.
He filed a Motion to Defer Further Proceedings and to Defer Issuance of Warrant of Arrest, later withdrawn.
He filed a Motion for Judicial Determination of Probable Cause, which the RTC adjudicated.

RTC Order and Reasoning (October 21, 2004)

The RTC ruled there was no probable cause and dismissed the cases, denying issuance of warrant of arrest and hold departure order.
RTC findings and reasoning included:
- Absence of misrepresentation or deceit under Article 315(2)(a): The alleged promises appeared in SBMEI’s printed Business Plan (January 12, 2001) and were corporate representations or enticements, not shown to have been personally prepared or personally assured by Desmond; complainant failed to show Desmond personally made representations regarding power, influence with SBMA or financial institutions.
- Valuation of marine mammals: Evidence pointed to an independent valuation by Beijing Landa Aquarium under a Buy-Out Agreement dated September 9, 1998; complainant bore the onus to controvert this valuation but failed to adduce adequate proof.
- Absence of personal misappropriation under Article 315(1)(b): Although money was used for salaries and utilities amounting to US$72,272.00 (RTC’s figure), complainant failed to show the money came from her companies’ investments specifically; funds in corporation’s coffers presumably co-mingled; corporate payments are corporate acts approved by board resolutions, not personal acts solely authorized by the President/CEO/Chairman; no sufficient evidence Desmond personally caused these payments for personal gain.
Ruling: Motion for judicial determination of probable cause granted; cases dismissed for lack of probable cause; motions for issuance of warrant and hold departure order denied.

Post-RTC Proceedings and CA Petition

The City Prosecutor filed a motion for reconsideration which the RTC denied.
The City Prosecutor filed a petition for certiorari and mandamus before the Co