criminal offense under corporation code (2)

7/21/2019 Criminal Offense Under Corporation Code (2)

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THE PENAL PROVISION UNDER SEC. 144OF THE CORPORATION CODE

by CESARL. VILLANUEVA, B.S.C., LL.B, LL.M.

Sec. 144, at near the end of the Corporation Code, provides that -

"SEC. 144. Violations of the Code.--Violations of any of the provisions of this Code or itsamendments not otherwise specifically penalized therein shall be pnished by a fine of not less than onethosand !1,###.##$ pesos bt not more than ten thosand !1#,###.##$ pesos or by imprisonment for notless than thirty !%#$ days bt not more than five !&$ years, or both, in the discretion of the cort. 'f theviolation is committed by a corporation, the same may, after the notice and hearin(, be dissolved inappropriate proceedin(s before the Secrities and E)chan(e Commission* rovided, +hat sch dissoltionshall not preclde the instittion of appropriate action a(ainst the director, trstee, or officers of thecorporation responsible for said violation rovided, frther, +hat nothin( in this section shall be constred torepeal the other cases for dissoltion of a corporation provided in this Code. !1#-1/a$."

0nder Sec. / of the Code, a person convicted by final 2d(ment of a violation of the Code

committed within five !&$ years prior to the date of his election or appointment, shall not be 3alified as adirector, trstee or officer of any corporation.

'n-depth discssions on the proper interpretation and covera(e of Sec. 144 of the Corporation Codeis essential since it provides for criminal penalties for violations of "any" of the provisions of the CorporationCode, and therefore seems to over-criminalize the provisions of that law. +he broad lan(a(e of Sec. 144,nless properly applied, presents a codal land mine that cold maim or harm the actors in the corporatesettin(, or wold tend to pt at ris many of the actations and decisions of the directors, trstees, andcorporate officers, as to necessarily cramp the e)ercise of their bsiness 2d(ment.

5ately, practitioners have be(an to loo at the seemin(ly all-encompassin( provisions of Sec. 144 toeffectively obtain reslts on their demands or claims a(ainst the corporation, by dan(lin( a threat of criminalsit a(ainst corporate directors and officers.

Criminal La Prin!i"l#$

+o effectively render a proper interpretation of the e)tent and reach of Sec. 144, which is essentiallya criminal law provision, it is necessary to view the section in line with prevailin( hilippine Criminal 5awprinciples.

6ltho(h the Corporation Code was essentially derived from common law 2risprdence andle(islation from the 0nited States, nevertheless, it has been lon( held by or Spreme Cort that the so-called common law crimes nown in the 0nited States and En(land as the body of principles, sa(es andrles of action, which do not rest for their athority pon any e)press and positive declaration of the will ofthe le(islatre, are not reco(nized in the hilippines. 0nless there be a particlar provision in the penal codeor special penal law that defines and pnishes the act, even if it be socially or morally wron(, no criminalliability is incrred by its commission.

7e have therefore in hilippine 2risdiction one of the fndamental rles of constrction of Criminal5aw, that penal laws are strictly constred a(ainst the State and liberally in favor of the accsed. 6ltho(h ithas also been held that sch constrction rle may be invoed only where the law is ambi(os and there isdobt as to its interpretation* where the law is clear and nambi(os, there is no room for the application ofthe rle.

8evertheless, the Spreme Cort has e3ally held that the rle of strict constrction of criminal lawis sbordinate to the rle of reasonable, sensible constrction, havin( in view the le(islative prpose andintent, and (iven effect to the same* the rle shold not be nreasonably applied as to defeat the tre intentand meanin( of the enactment fond in the lan(a(e actally sed. enal stattes shall not, by what may be


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tho(ht their spirit and e3ity, be e)tended to offenses other than those which are specifically and clearlydescribed and provided for since the law will not allow constrctive offenses or arbitrary pnishments. +hisrle does not e)clde the application of common sense to the terms sed in the law.

T%# El#m#n&$ '( &%# Criminal O((#n$# Un)#r S#!. 144

5ooin( at the lan(a(e of Sec. 144, one can see that it seems all-encompassive in natre as itimposes criminal liability for "Violations of any of the provisions of this Code or its amendments nototherwise specifically penalized therein." +his is frther bolstered by the fact that in addition, Sec. 144 doesnot mean to cover other provisions of the Corporation Code which provides for specific penalties !as Sec. /4on violation of the ri(ht of inspection as discssed herender$ becase is ses the phrase "not otherwisespecifically penalized therein."

't is difficlt to constre Sec. 144 to mean all non-compliance with the provisions of the CorporationCode wold be criminally pnishable. 9or e)ample, nder Sec. : of the Corporation Code, it is providedthat within thirty !%#$ days after the election of the directors, trstees and officers of the corporation, thesecretary, or any other officer of the corporation, shall sbmit to the SEC, the names, nationalities andresidences of the directors, trstees and officers elected. 'f a corporate secretary fails to comply with thisprovision, wold he then be sb2ect to a criminal penalty nder Sec. 144;

Sch a constrction wold seem too harsh, and effectively discora(e competent and well-meanin(individals from acceptin( positions within the corporate settin(. 't wold then mae the corporation a verynattractive medim for commerce.

T%# M#anin* '( +Vi'la&i'n+ Un)#r S#!. 144

+he proper and reasonable interpretation of Sec. 144 is to determine what the term "violations"covers.

"Violation" means "'n2ry* infrin(ement* breach of ri(ht, dty or law*" the action of breain( a law,rle, a(reement, promise, or instrction.

+herefore, the "violations" covered by Sec. 144 covers only those provisions in the CorporationCode which are e)pressly mandatory in natre to show the tre intent of Con(ress to impose a penal

sanction for non-compliance therewith.

9or e)ample, Sec. 1& of the Corporation Code provides for the form to be followed in preparin( andfilin( the articles of incorporation of a corporation. Certainly, non- compliance therewith wold not sb2ect theincorporators to penal sanction, altho(h certainly that wold be a "violation" of the provisions of theCorporation Code in broad se of the term "violation". Especially so when the Code itself nder Sec. 1/(ives the SEC athority to re2ect the articles of incorporation or disapprove the same if it does not complywith the Code. 'n fact that same section (rants the incorporator a reasonable time "within which to correct ormodify the ob2ectionable portions of the articles."

+here are other provisions in the Corporation Code where it wold seem clear that civil sanction fordama(es is imposed rather than the criminal sanction nder Sec. 144 thereof. 0nder Sec. %1 thereof, adirector or trstee who willflly and nowin(ly votes for or assents to patently nlawfl acts of the corporationor who are (ilty of (ross ne(li(ence or bad faith in directin( the affairs of the corporation or ac3ire any

personal or pecniary interest in conflict with their dty as sch directors or trstees shall be liable 2ointly andseverally for all dama(es resltin( therefrom sffered by the corporation, its stocholders or members andother persons. 0nder Sec. %, where a director, by virte of his office, ac3ires for himself a bsinessopportnity which shold belon( to the corporation, thereby obtainin( profits to the pre2dice of schcorporation, he mst accont to the corporation for all sch profits by refndin( the same.

So also, nder Sec. :&, any director or officer of a corporation consentin( to the issance of stocsfor a consideration less than its par or issed vale or for a consideration in any form other than cash,valed in e)cess of its fair vale, or who, havin( nowled(e thereof, does not forthwith e)press his ob2ectionin writin( and file the same with the corporate secretary, shall be solidarily liable with the stocholder


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concerned to the corporation and its creditors for the difference between the fair vale received at the time ofissance of the stoc and the par or issed vale of the same.

'n all the fore(oin( instances, it wold not be proper to sb2ect errin( directors, trstees, orcorporate officers to criminal penalty nder Sec. 144 since the specific provisions themselves provide for theproper remedies in each case. +his is the proper and reasonable interpretation of the phrase in Sec. 144"not otherwise specifically penalized therein" to mean that even when the provisions seems to be mandatory

and the violation thereof is a serios breach, when the particlar provision already provides for a specificpenalty the penal sanction nder Sec. 144 shold not be made to apply.

+here is a specific provisions of the Corporation Code where the 5e(islatre has made it clear orapparent that it sees to impose the penal sanctions nder Sec. 144 for non-compliance therewith. 0nderSec. /4, any officer or a(ent of the corporation who shall refse to allow any director, trstee, stocholder ormember of the corporation to e)amine or copy e)cerpts from its records and mintes, in accordance with theprovisions of this Code "shall be liable to sch director, trstee, stocholder or member for dama(es, and inaddition, shall be (ilty of an offense which shall be pnishable nder Section 144 of this Code." Section1/4 of the Corporation Code is therefore a clear e)ample of the intent of 5e(islatre that when it sees toimpose the criminal sanction nder Sec. 144 for violation of the provision of the Code, then it ses clearwords to indicate so.

6t present, only Sec. /4 of the Corporation Code refers to Sec. 144, so that effectively only violation

of the ri(ht of inspection nder Sec. /4 are criminally pnishable nder Sec. 144. 'n effect, the broadcovera(e of Sec. 144 is meanin(less since it is applicable only to Sec. /4 of the Code. 'f that is the le(aleffect, then it cold be ar(ed that 5e(islatre, when it enacted Sec. 144 of part of the Corporation Code,had not intended it to be a practically seless provision since the penal sanctions provided therein coldhave effectively been stated in Sec. /4 if it is indeed the only violation applicable to said provision.


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Sbse3ently, then Sec. 1#-1/ became the (eneral sanction nder the then Corporation 5aw forviolations of the above-enmerated offenses. Sch offenses, considered to be archaic, have not beencarried over into the Corporation Code. +herefore, Sec. 144 shold now be viewed not as a contemporaryenactment of 5e(islatre as a "new" policy towards violation of the any and all provisions of the CorporationCode, bt really a relic or carry-over of the old Corporation 5aw provision which therefore shold beinterpreted in the same manner as then Sec. 1#-1/ of the 5aw, which also carried the phrase "nototherwise penalized therein."

6s ori(inally enacted, the old Corporation 5aw did not contain any appropriate clase directlypenalizin( the act of a corporation, or member of a corporation for violation of certain prohibited acts nderthat law. +he hilippine 5e(islatre ndertoo to remedy the sitation in section % of 6ct 8o. /, approvedon 1> 9ebrary 11, providin( for the ori(inal version of Sec. 1#.

=overnment of the hilippine 'slands v. El


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C'n&rary Vi#

't shold be noted, however, that =evarra, in his treatise on the old Corporation 5aw too thecontrary position that the 5aw "provides special penalties for violations of some provisions of the Corporation5aw and also a (eneral penalty for violations not specifically penalized therein."

7e mst also tae note of the obiter dictm e)pressed in


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Ab$#n!# '( Mali!# 'r D#(#n$# '( '') Fai&% Un)#r &%# C'r"'ra&i'n C')#

Even if one where to meet head-on the position that Sec. 144 was meant by 5e(islatre toencompass every violation of the provisions Corporation Code, it wold be e)tremely difficlt to obtain aconviction nder Sec. 144, e)cept for the specific violation nder Sec. /4 of the Code. 8ot only mst the(ilt of the accsed be proven beyond reasonable dobt, bt more so, since violations of the CorporationCode are not mala prohibita, bt constitte mala in se, then the evil intent or malice of the accsed is an

essential element for a crime pnishable nder Sec. 144. +his is demonstrated by no less than Sec. /4which provides (ood faith as a defense "+hat it shall be a defense to any action nder this section that theperson demandin( to e)amine and copy e)cerpts from the corporation@s records and mintes has improperlysed any information secred thro(h any prior e)amination or the records or mintes of sch corporation orof any other corporation, or was not actin( in (ood faith or for a le(itimate prpose in main( his demand."

'n cases, therefore, of prosections nder Sec. 144, the director, trstee or officer accsed, coldhave more than eno(h le(al basis to claim (ood faith becase of the varied interpretations and applicationsof the principles of Corporate 5aw.

't shold be recalled that Corporate 5aw is essentially a transplant of that specific body of lawcomin( from the common law 2risdiction of the varios states of the 0nited States. +he Corporation Codemay have e)pressed in stattory form many of the common law principles of Corporate 5aw, however thereare varios interpretations of similar provisions in varios codes. 'n addition, there are varios common law

principles in Corporate 5aw that are applicable in or 2risdiction that have not even fond their way in theCorporation Code, bt which nevertheless are applied by or Spreme Cort. 6 prime e)ample of this arethe principles pertainin( to derivative sits, which are all fond in decisions of the Spreme Cort whichhave no direct stattory basis in the Corporation Code.

Fr own Spreme Cort every now and then relies on discssions of 9letcher to resolves isses inCorporate 5aw. 'n addition, there are varyin(, and sometimes conflictin( decisions on the same principle orstattory provision in Corporate 5aw amon( the varios corts in the 0nited States. 9inally, the often fastdevelopment in or commercial transactions which have by practice allowed previosly otlawed practicesto be accepted !sch as ri(hts of first refsal practice, classification of the board seats, etc.$ have often beenreco(nized as reasonable and lawfl bases to validly animate board decisions or actations of corporateofficers.

+here is therefore every leeway for the defense in a criminal sit based on Sec. 144 of the

Corporation Code, to show that the element of malice does not pertain to an act or a transaction pon whichthe criminal imptation is based pon.

---oFo---

blished last 9ebrary, 1: in +% Ed., Gobleday K Company, 'nc. Chica(o 'llinois.


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Salon(a, > a., 4>4.

&> hil. 141 !1%%$.'bid, at p. 14* emphasis spplied.

=evarra, CFIFI6+'F8 567 !hil. r. Series '$, 1/> Ed., 0.. 5aw Center.

'bid, at p. .

1% SCI6 44 !1>>$.

4: hil. /# !14$.

'bid, at pp. 4%>-4%* emphasis spplied.

'bid, at p. 4%&.

criminal offense under corporation code (2)

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