1. Saber vs CA, Aug.

31, 2004*]

The Antecedents
 On April 8, 1974 then President Ferdinand E. Marcos appointed Dr. Mamitua Saber, then
Dean of Research at the Mindanao State University and Acting Director, National Science
Museum, as Executive Vice-President of the Philippine Amanah Bank (PAB).He was also
designated as the Officer-in-Charge of the bank pending the election of its president by the
Board of Directors.

 In a Letter dated September 19, 1974, Executive Secretary Alejandro Melchor informed
Chairman of the PAB Board of Directors Dr. Cesar A. Majul, that the bank had been
designated to make appropriate preparations and arrangements for the annual pilgrimage of
Filipino Muslims to Mecca.

 The next day, Majul forwarded the letter to Saber, directing the latter to undertake the
appropriate arrangements for the pilgrimage.Saber was concerned because he had only two
months to prepare; the pilgrims had to be in Mecca in time for the one-day ceremony at Mt.
Arafat on December 23, 1974.

 Considering that Saber had no experience thereon, the PAB Board of Directors designated
Saludo as the head of the one-man oversight committee to oversee the preparations.

 Saber decided to charter the M/V Sweet Homes, owned by the Sweet Lines, Inc., for the trip.
In behalf of the PAB, as charter, Saber executed a Uniform Time-Charter on October 15, 1974
under which the PAB chartered the M/V Sweet Homes to transport the pilgrims to Mecca and
back to the Philippines for P5,300,000 cash, the amount budgeted8 by the PAB. The parties
executed a Rider to Charter Party in which the PAB was allowed to load cargoes in the cargo
hold of the vessel up to 500 metric tons free of freight.

 Prospective pilgrims, including PAB depositors, made reservations for the voyage and made
partial payments for their tickets thereon.

 On October 25, 1974, Saber wrote then President Marcos requesting that other parties not be
allowed to charter any ship or aircraft bringing pilgrims to Jeddah, to avoid unfair
competition with the PAB.

 However, President Marcos granted Congressman Ali Dimaporo and some politicians from
Lanao del Sur permission to charter a plane to transport the pilgrims.

 In November 1974, Saber formed a three-man panel called the “Troika,” composed of Atty.
Lanang Ali, Dialel Basman and Ibrahim Mamao, to coordinate the arrangements for the
pilgrimage. Rather than allow the vessel to leave for Mecca with many vacant cabins,
Saber decided to sell tickets to Basman on credit.

 He issued a Memorandum on November 21, 1974, informing the Troika that he had reached
an agreement with Basman that the latter would purchase forty (40) first class (ordinary)
cabin accommodations and thirty (30) second class (dormitory) accommodations on board the
M/V Sweet Homes, and that Basman would pay via a postdated check.

 Although they believed that the agreements of Saber with Basman/AGEAC were against the
policies of the PAB, the Troika/ Secretariat had to implement the Memoranda, and because of
Saber’s insistence, gave the tickets to Basman.

 Basman loaded exportable goods on board the vessel. When the vessel arrived in Saudi
Arabia, the authorities did not allow the M/V Sweet Homes to dock.
  Its passengers were boarded on boats and transported to the pier. Basman failed to unload
and sell the exportable goods, much less purchase importable goods. When the postdated
checks were deposited on the due dates thereof in the account of the PAB, they were
dishonored.2 Basman, likewise, failed to pay for the freight charge for the exportable cargo of
AGEAC to Saudi Arabia.

 Consequently, the PAB sustained a huge financial loss.

.

 On May 6, 1975, the PAB Board of Directors approved Resolution No. 92 confirming the
recommendation of the management of the bank for the creation of an Investigating
Committee of five (5) members, chaired by Aradji, to look into the administrative and/or
criminal liabilities of the persons involved in the Pilgrimage Project.23 It also resolved that
pending the outcome of the investigation, Saber be given only a conditional clearance.24

 On October 6, 1975, Saber filed a civil complaint for damages in the RTC of Marawi City,
Branch 9, against the PAB, the Chairman and the members of its Board of Directors, its
Managing Director Martin Saludo, Auditor Aramis Aguilar, and Assistant Auditor Rodolfo
Ocampo.

 Saber alleged therein that the PAB was authorized to make the appropriate arrangements for
the pilgrimage; he had the implied authority to enter into transactions, including the
authority to sell the tickets to Basman on credit and to execute the Freight Contract
with AGEAC. He pointed out that Martin Saludo, who was appointed by the Board of
Directors to oversee the preparation of the pilgrimage, approved the said transactions; hence,
he is not personally liable for the receivables of P1,033,700.

 He alleged that the defendants therein acted arbitrarily, oppressively and unfairly in
considering the receivables in connection with the pilgrimage as his personal obligation and
in approving Resolution No. 67

 He further averred that the conditional clearance made by Ocampo and Aguilar caused him
great damage and prejudice, and that the filing of the anti-graft charges against him by the
PAB and its Board of Directors was devoid of any factual and legal basis. He claimed that the
filing of the charges, the nationwide publication thereof at the behest of the PAB, and the
press release of the Investigating Committee’s report and the complaint caused him dishonor,
shame, discredit and contempt, shock, besmirched reputation, and wounded feelings, for
which the defendants were liable for moral, exemplary and actual damages.

 He also alleged that because of his preventive suspension, he failed to receive his salary from
the Mindanao State University, causing him and his family severe economic losses. He
further claimed that Aradji and Saludo conspired to oust him from the PAB.

 The remaining defendants therein, the PAB and Aradji, alleged the following in their Answer:
Saber sold tickets on credit to Bas-man payable via postdated checks without authority from
the PAB Board of Directors; defendant Martin Saludo approved in principle the lease of the
cargo spaces in the M/V Sweet Home, but subject to the approval of the PAB Board of
Directors; the said lease contract, including the Freight Contract with AGEAC, was never
approved by the PAB Board of Directors; the PAB had no obligation to issue a clearance to
Saber, and it would have been injudicious it to have done so on account of Saber’s unpaid
personal obligations to the bank; contrary to Saber’s claim, there were factual and legal bases
for the approval of Resolution No. 67 and the filing of the graft charges against him; Saber
made no allegations in the complaint that they (the defendants therein) caused or in any way
participated in the publication of the charges filed by the PAB against him; and, the
defendants acted in good faith, in the performance of their duties in the filing of the
complaint in violation of Section 3, Rep. Act No. 3019.

 After trial, the Sandiganbayan rendered a Decision on January 6, 1982

acquitting all the accused. In acquitting Saber of the charge, the
Sandiganbayan ruled:
 It is of no legal consequence that both the
MEMORANDUM and the ADDENDUM were not approved by
the Board of Directors of the BANK. For one thing, it is not
the absence of such approval that made the transactions
subject of both documents criminal under the penalizing
Act but whether they caused undue injury to the BANK or
gave unwarranted benefits, advantage or preference to
Sacar Basman through manifest partiality, evident bad
faith or gross inexcusable negligence of the accused BANK
officials, which the court believes did not.

For another thing, the time element and the fact that
the members of the Board were themselves responsible
officials of different government offices precluded convening
them to a meeting for that purpose.

RTC Decision

On February 11, 1989, the RTC rendered a Decision in Civil Case No. 2323 in
favor of Saber, and against the PAB and Aradji,

CA Ruling:
The decision was appealed to the Court of Appeals, which rendered a
judgment reversing the decision of the trial court.

The CA ruled that Saber failed to prove bad faith and malice against the PAB and
Aradji in the performance of their duties, and in exercising the powers of their office. It
also held that the latter acted out
The CA further ratiocinated that –

Defendants could not be blamed for acting the way they did for they were charged with
the duty to act for the bank with loyalty and dedication, and according to their best
judgment. It is a well-known rule of law that questions of policy or of management are
left solely to the honest decisions of officers and directors of a corporation, and so long
as they act in good faith, their orders are not reviewable by the courts.
It is, thus, evident that defendants PAB and Aradji were not in the least motivated by any
malicious intent or by a sinister design to unduly harass plaintiff Saber, but only by a
well-founded anxiety to protect the interests of the bank when they caused the filing of a
criminal complaint against the latter.

ISSUE: Whether the filing of complaint against Saber was malicious prosecution

Saber failed to adduce convincing evidence that Saludo and respondent Aradji
conspired to oust him from his position as Assistant Vice-President of the respondent
bank.
Neither may bad faith nor malice be imputed on the respondents in holding Saber personally
liable for the receivables of P1,033,700. The evidence of Saber, no less, shows that he was present
during the 16th Meeting of the Board of Directors of the PAB. So were Ministers Cesar Virata and
Leonides Virata. After an intensive and exhaustive discussion, the Board resolved that Saber had
 no authority to enter into any agreement with Basman for the sale of the tickets on credit payable
by postdated checks, and to execute a Freight Contract with AGEAC over the cargo hold in the
M/V Sweet Homes. The Board unanimously resolved not to ratify the agreements executed by
Basman and Saber in behalf of the PAB and with AGEAC, and for Saber to take full responsibility
for the collection of receivables.

To constitute malicious prosecution, there must be a proof that the prosecutor was
prompted by a sinister or devious design to vex and humiliate a person, and that it
was initiated deliberately, knowing that the charges are false and groundless.

Malice with probable cause must both be clearly established to justify an award of
damages based on malicious prosecution.

Lack of probable cause is an element separate and distinct from that of malice. One
cannot be held liable for damages for malicious prosecution where he acted with
probable cause.61 We also held that a determination that there is no probable cause
cannot be made to rest solely on the fact that the trial court after trial decided to
acquit the accused. Neither can lack of probable cause be made to rest on the fact that
the finding of probable cause of the Special Counsel was reversed by the Secretary of
Justice or the Ombudsman as the case may be.62 The mere act of submitting the case
to the authorities for prosecution does not make one liable for malicious
prosecution.63 Moreover, the adverse result of an action does not per se make the
action wrongful and subject the action to damages, for the law could not have meant
to impose a penalty on the right to litigate. If damages result from a person’s exercise
of a right, it is damnum absque injuria.

Probable cause is that which engenders a well-founded belief that a crime has been
committed and that the respondent is probably guilty thereof and should be held for
trial. A finding for probable cause needs only to rest on evidence showing that in all
probability, a crime has been committed by the respondent. Probable cause need not
be based on clear and convincing evidence beyond reasonable doubt. While probable
cause demands more than mere suspicion, it does not require that the evidence would
justify conviction.65
Saber failed to prove that the respondents filed the criminal complaints against him
with malice and despite lack of probable cause therefor.

2. Metroplex Berhad vs Sinophil, GR 208281, June 28, 2021° (J. Hernande

Facts:

 Petitioner Metroplex Berhad (Metroplex) is a corporation in liquidation duly organized and

existing under and by virtue of the laws of Malaysia, while petitioner Paxell Investment
Limited (Paxell) is a corporation duly organized and existing under and by virtue of the laws
of Western Somoa. Both Metroplex and Paxell have their principal offices at Kuala Lumpur,
Malaysia

 On the other hand, respondent Sinophil is a publicly-listed corporation duly organized and
existing under and by virtue of the laws of the Philippines with principal office at Pasig City,
Philippines. Respondent Belle Corporation (Belle) is another publicly-listed corporation duly
organized and existing under and by virtue of the laws of the Philippines with principal office
also at Pasig City.
 The other individual respondents are the SEC Directors, Assistant Directors, and officers of
the SEC who caused, facilitated, implemented, and approved the questioned actions of the
Operating Departments of the SEC. These Operating Departments included the Company
Registration and Monitoring Department (CRMD); the Corporation Finance Department
(CFD); the Corporate and Partnership Registration Division (CPRD); and the Financial
Analysis and Audit Division (FAAD) of the SEC.7

The Antecedents:

 In August 1998, Sinophil entered into a Share Swap Agreement (Swap Agreement) with
Metroplex and Paxell. Under the Swap Agreement, Metroplex and Paxell would transfer
40% of their shareholdings in Legend International Resorts Limited (Legend) for a
combined 35.5% stake in Sinophil.

 In their Comment/Opposition, however, Sinophil and Belle alleged that the Swap Agreement
was entered into in March 1997. Pursuant to the Swap Agreement, Sinophil issued 2.41
billion shares to Metroplex and 1.45 billion shares to Paxell, totaling 3.87 billion shares in
exchange for 46.38 million shares of Legend which were transferred by the Metroplex Group
(Metroplex and Paxell) to Sinophil's name.

 In the interim, Metroplex pledged two billion of its Sinophil shares with Union Bank and
Asian Bank to secure the loans of Legend with the said banks.10

The following pertinent sequence of events followed:

 On August 23, 2001, Sinophil and Belle executed a Memorandum of Agreement (Unwinding
Agreement) with Metroplex and Paxell rescinding the 1998 Swap Agreement.

 After the execution of the Unwinding Agreement, Metroplex and Paxell were unable to return
1.87 billion of the Sinophil shares while another two billion Sinophil shares remained pledged
by Metroplex in favor of International Exchange Bank and Asian Bank.

 On February 18, 2002 and June 3, 2005, the shareholders of Sinophil voted for the reduction
of Sinophil's authorized capital stock.

 On March 28, 2006, the CRMD and the CFD approved the first amendment of the Articles of
Incorporation of Sinophil, reducing its authorized capital stock by 1.87 billion shares. The
following day, or on March 29, 2006, the approval of the reduction of Sinophil's authorized
capital stock was disclosed to the Philippine Stock Exchange, Inc. (PSE).

 On June 21, 2007, the shareholders of Sinophil again approved the proposal of the Board of
Directors to reduce its authorized capital stock by another one billion shares.

 On June 24, 2008, the CRMD and the CFD approved the second amendment of the Articles of
Incorporation of Sinophil which further reduced its authorized capital stock by one billion
shares. On June 30, 2008, the approval of the reduction of Sinophil's authorized capital stock
was likewise disclosed to the PSE.

 On July 21, 2008, petitioners Yaw Chee Cheow (Yaw), Metroplex and Paxell filed a Petition for
Review Ad Cautelam Ex Abundanti16 before the SEC assailing the approval by the CRMD
and the CFD of the amendments by Sinophil of its Articles of Incorporation. Petitioners
claimed that:

1. They opposed the decrease of the authorized capital stock;

2. They were not given the opportunity to be heard by the CFD;
3. The reduction was approved by the CRMD and CFD despite the lack of more than two-
thirds (2/3) approval of the Sinophil shareholders;
4. The decrease in the authorized capital stock of Sinophil violated the legal requirement
that a corporation cannot reduce its issued capital unless it has unrestricted retained
earnings;
 5. The decreases involved the "selective reduction" of Sinophil 's authorized capital stock
which resulted in the diminution of the shareholdings of petitioner Yaw and other
shareholders of Sinophil, and the return of the investments of petitioners Metroplex and
Paxell ahead of Yaw and other shareholders of Sinophil;
6. The selective reduction entailed the assumption and payment of loans secured by
Metroplex and Paxell 's Sinophil shares, to the prejudice of Sinophil and its shareholders
including petitioner Yaw.17

Thus, the following three issues were raised by the petitioners:

1. Whether the actions of the CRMD and the CFD allowing the reduction of the
outstanding capital stock of Sinophil authorized the "selective" reduction of its issued
capital;

2. Whether such "selective" reduction had complied with all relevant and procedural
requirements and could be legally done through the cancellation and delisting of the 3.87
billion Sinophil shares of Metroplex and Paxell over the objection of the petitioners; and

3. Whether the questioned actions of the CRMD and the CFD constitute grave reversible
errors or abuse of discretion amounting to lack or excess of jurisdiction which should be
set aside and declared null and void.18

On the other hand, private and public respondents claimed, among others, that there
was full compliance with Section 38 of the Corporation Code by the submission of all the
requirements and that there was a presumption of regularity in the performance of public
respondents' duties.

Ruling of the Securities and Exchange Commission:

On February 26, 2009, the SEC issued its assailed Order21 denying petitioners'
Petition for Review Ad Cautelam Ex Abundanti and essentially affirming the acts of the
CRMD and CFD regarding the decrease in the capital stock of Sinophil.

The SEC found that the decrease in capital stock complied with the requirements
imposed by the Corporation Code, particularly Section 38. It held that the equal or
unequal reduction of a corporation's capital stock is a matter solely between the
stockholders and cannot be enjoined either by the courts or the creditors.

Moreover, the SEC found no basis to grant the prayer for the issuance of a cease
and desist order. Petitioners failed to raise valid grounds for its issuance. The
Commission held that a cease and desist order could not be ultimately issued because
the grave and irreparable danger to the investing public that petitioners fear is not
present in the case.23

Ruling of the Court of Appeals:

On January 29, 2013, the CA promulgated its Decision which upheld the findings of the SEC.

Issues

Ultimately, the main issue raised by petitioners is whether or not the appellate
court correctly affirmed in toto the Order of the SEC.

Our Ruling

The Court denies the Petition.

 SEC only has the ministerial duty to approve the decrease of a corporation's
authorized capital stock.
After a corporation faithfully complies with the requirements laid down in Section 38, the SEC
has nothing more to do other than approve the same. Pursuant to Section 38, the scope of the
SEC's determination of the legality of the decrease in authorized capital stock is confined only to
the determination of whether the corporation submitted the requisite authentic documents to
support the diminution. Simply, the SEC's function here is purely administrative in nature.

In Ong Yang v. Tiu,34 the Court held that decreasing a corporation's authorized capital stock,
which is an amendment of the corporation's Articles of Incorporation, is a decision that only
the stockholders and the directors can make, considering that they are the contracting
parties thereto.

For third persons or parties outside the corporation like the SEC to interfere to the decrease of
the capital stock without reasonable ground is a violation of the "business judgment rule" which
states that:

[C]ontracts intra vires entered into by the board of directors are binding upon the
corporation and courts will not interfere unless such contracts are so unconscionable and
oppressive as to amount to wanton destruction to the rights of the minority, as when
plaintiffs aver that the defendants (members of the board), have concluded a transaction
among themselves as will result in serious injury to the plaintiffs stockholders.

The reason behind the rule is aptly explained by Dean Cesar L. Villanueva, an esteemed author in
corporate law, thus:

Courts and other tribunals are wont to override the business judgment of the board mainly
because, courts are not in the business of business, and the laissez faire rule or the free
enterprise system prevailing in our social and economic set-up dictates that it is better for
the State and its organs to leave business to the businessmen; especially so, when courts
are ill-equipped to make business decisions. More importantly, the social contract in the
corporate family to decide the course of the corporate business has been vested in the
board and not with the courts.35

The "business judgment rule" simply means that "the SEC and the courts are barred from
intruding into business judgments of corporations, when the same are made in good faith."

Furthermore, the SEC is not vested by law with any power to interpret contracts and interfere in
the determination of the rights between and among a corporation's stockholders.

Neither can the SEC adjudicate on the contractual relations among these same stockholders.
petitioners' allegation that it is the SEC that should determine the parties' rights under the
contracts executed, particularly the Swap Agreement, the Unwinding Agreement, and the general
proxy, has no basis. To stress, the SEC's only function here was to determine the corporation's
compliance with the formal requirements under Section 38 of Corporation Code.

The issuance of an injunctive relief of temporary restraining order (TRO) is not warranted.

Section 4, Rule 58 of the Rules of Court provides that a TRO may be granted only when:

(a) The applicant is entitled to the relief demanded, and the whole or part of such relief consists in
restraining the commission or continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or perpetually;

(b) The commission, continuance or non-performance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or

(c) The party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the judgment
ineffectual.
 Petitioners argue that unless the questioned act of respondents of irregularly or illegally reducing
Sinophil's issued capital stock is restrained permanently, "the same will operate as a fraud on
investors such as the Petitioners and will also likely cause grave or irreparable injury or prejudice
to the investing public."37

The Court disagrees.

The alleged fraud as well as the grave or irreparable injury or prejudice to the investing public are
not present in the case.

Firstly, there is no fraudulent act committed by respondents as has been held by both the CA and
this Court, as discussed above.

Secondly, petitioners failed to show how the investing public would be prejudiced by the decrease
and delisting in view of its disclosure to the PSE.

Disclosure of corporate actions to the stock exchange is intended to apprise the investing public
of the condition and planned corporate actions of the listed corporation, thereby providing
investors with sufficient, relevant and material information as to the nature of the investment
vehicle and the relationship of the risks and returns associated with it.

The corporation's simple act of disclosing the decrease and delisting to the PSE was more than
enough notice to the investing public. There was nothing in the corporation's act that resulted in
grave or irreparable injury or prejudice to the investing public.

WHEREFORE, the Petition for Review on Certiorari with Application for the Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction is DENIED.

3. Strong vs Repide (special facts doctrine)

Facts:

This action was brought to recover 800 shares of the capital stock of
the Philippine Sugar Estates Development Company, Limited, an
anonymous society formed to hold the Dominican friar lands.

Strong (plaintiff) owned stock in the Philippine Sugar Estates

Development Company, Limited (the company).

Repide (defendant) was a director of the company and owned about

three-quarters of the company’s stock.

He was also the company’s administrator general and thus had

exclusive control of the company’s management.

The company owned friar lands.

The Philippine government (government) made an offer to purchase

this land.
Repide handled the company’s negotiations with the government.
While the offer from the government was being considered, Repide
hired a third party broker to buy Strong’s stock in the company. This
third party broker hired another third party to communicate with
Strong. Neither Repide nor the first broker he hired disclosed the
pending land sale. The broker communicating with Strong did not
know that Repide was the actual purchaser of Strong’s stock. The sale
of the land to the government resulted in the company’s stock
increasing in value tenfold. Strong brought suit against Repide,
claiming fraud and seeking to void Repide’s purchase of her stock.

If it were conceded, for the purpose of the argument, that the ordinary
relations between directors and shareholders in a business
corporation are not of such a fiduciary nature as to make it the duty
of a director to disclose to a shareholder the general knowledge which
he may possess regarding the value of the shares of the company
before he purchases any from a shareholder, yet there are cases
where, by reason of the special facts, such duty exists. The supreme
courts of Kansas and of Georgia have held the relationship existed in
the cases before those courts because of the special facts which took
them out of the general rule, and that, under those facts, the director
could not purchase from the shareholder his shares without informing
him of the facts which affected their value. Stewart v. Harris, 69 Kan.
498; Oliver v. Oliver, 118 Ga. 362. The case before us is of the same
general character. On the other hand, there is the case of Tippecanoe
County v. Reynolds, 44 Ind. 509, 515, where it was held (after
referring to cases) that no relationship of a fiduciary nature exists
between a director and a shareholder in a business corporation. Other
cases are cited to that effect by counsel for defendant in error. These
cases involved only the bare relationship between director and
shareholder. It is here sought to make defendant responsible for his
actions, not alone and simply in his character as a director, but
because, in consideration of all the existing circumstances above
detailed, it became the duty of the defendant, acting in good faith, to
state the facts before making the purchase. That the defendant was a
director of the corporation is but one of the facts upon which the
liability is asserted, the existence of all the others in addition making
such a combination as rendered it the plain duty of the defendant to
speak. He was not only a director, but he owned three-fourths of the
shares of its stock, and was, at the time of the purchase of the stock,
administrator general of the company, with large chanrobles.com-red
Page 213 U. S. 432

powers, and engaged in the negotiations which finally led to the sale of
the company's lands (together with all the other friar lands) to the
government at a price which very greatly enhanced the value of the
stock. He was the chief negotiator for the sale of all the lands, and was
acting substantially as the agent of the shareholders of his company
by reason of his ownership of the shares of stock in the corporation
and by the acquiescence of all the other shareholders, and the
negotiations were for the sale of the whole of the property of the
company. By reason of such ownership and agency, and his
participation as such owner and agent in the negotiations then going
on, no one knew as well as he the exact condition of such
negotiations. No one knew as well as he the probability of the sale of
the lands to the government. No one knew as well as he the probable
price that might be obtained on such sale. The lands were the only
valuable asset owned by the company. Under these circumstances,
and before the negotiations for the sale were completed, the defendant
employs an agent to purchase the stock, and conceals from the
plaintiff's agent his own identity and his knowledge of the state of the
negotiations and their probable result, with which he was familiar as
the agent of the shareholders, and much of which knowledge he
obtained while acting as such agent, and by reason thereof. The
inference is inevitable that at this time he had concluded to press the
negotiations for a sale of the lands to a successful conclusion -- else,
why would he desire to purchase more shares which, if no sale went
through, were, in his opinion, worthless because of the failure of the
government to properly protect the lands in the hands of their then
owners? The agent of the plaintiff was ignorant in regard to the state
of the negotiations for the sale of the land, which negotiations and
their probable result were a most material fact affecting the value of
the shares of stock of the company, and he would not have sold them
at the price he did had he known the actual state of the negotiations
as to the lands, and that it was the defendant who was seeking to
purchase the stock. Concealing his identity when chanrobles.com-red

Page 213 U. S. 433

procuring the purchase of the stock by his agent was, in itself, strong
evidence of fraud on the part of the defendant. Why did he not ask
Jones, who occupied an adjoining office, if he would sell? But, by
concealing his identity, he could by such means the more easily avoid
 any questions relative to the negotiations for the sale of the lands and
their probable result, and could also avoid any actual
misrepresentations on that subject, which he evidently thought were
necessary in his case to constitute a fraud.
This "special facts or special circumstances" rule meant that although directors
generally had no duty to disclose material facts when trading with
shareholders, as the majority rule held, a duty might arise where there were
special circumstances, such as concealment of the defendant-purchaser's
identity (the corporate officer had used an agent go-between to avoid detection
of his actions by the seller here) and a failure to disclose significant facts that
materially affected the price of the stock.
4. PCGG vs Gutierrez, July 9, 2018*

Behest Loan Meaning: The term behest loan refers to a loan granted to individuals or corporations favored
by a powerful government official despite their lack of qualifications to
receive such a loan (vikiedial
Petitioner: PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT

Respondent: ( Public respondents) : MA. MERCEDITAS NAVARRO-GUTIERREZ (AS THEN OMBUDSMAN),

DON M. FERRY, JOSE R. TENGCO, JR., ROLANDO M. ZOSA, CESAR C. ZALAMEA, OFELIA I. CASTELL,
AND RAFAEL A. SISON,(DBP Officials)
(Private Respondents, Galleon Stockholders)RODOLFO M. CUENCA, MANUEL I. TINIO, AND ANTONIO R.
ROQUE
Facts'
An Affidavit-Complaint was filed by the PCGG against former officers/directors of the Development Bank
of the Philippines (DBP), namely, Ferry, Tengco, Zosa, Zalamea, Castell, and Sison, as well as former
officers/stockholders of National Galleon Shipping Corporation (Galleon), namely, Cuenca, Tinio, and
Roque charging them of violating Sections 3 (e) and (g) of RA 3019.

In the Affidavit-Complaint, the PCGG alleged that on October 8, 1992, then President Fidel V. Ramos
(President Ramos) issued Administrative Order No. 13, creating the Presidential Ad HocFact-Finding
Committee on Behest Loans (Ad Hoc Committee) in order to identify various anomalous behest loans
entered into by the Philippine Government in the bast

Later on, President Ramos issued Memorandum Order No. 619 on November 9, 1992, laying down the
criteria which the Ad Hoc Committee may use as a frame of reference in determining whether or not a
loan is behest in nature

. Thereafter, the Ad Hoc Committee, with the assistance of a Technical Working Group (TWG) consisting
of officers and employees of different government financial institutions (GFIs), examined and studied
documents relative to loan accounts extended by GFls to various corporations during the regime of the
late President Ferdinand E. Marcos (President Marcos) -one of which is the loan account granted by the
DBP to Galleon.

Based on its investigation, the Ad Hoc Committee concluded that the loans/accommodations obtained by
Galleon from DBP possessed positive characteristics of behest loans, consterne cat
A) Galleon was undercapitalized;
1. the loan itself was undercollateralized;
2. the major stockholders of Galleon were known to be cronies of President Marcos; and
3. certain documents pertaining to the loan account were found to bear "marginal notes"
or President Marcos himself

Ombudsman Ruling:

The Ombudsman found no probable cause against private respondents and, accordingly,dismissed the
criminal complaint against them. It found that the pieces of evidence attached to the case records were
not sufficient to establisn probable cause against the individual respondents, considering that the
documents presented by the PCGG consisted mostly of executive summaries and technical reports, which
are hearsay, self-serving, and of little probative value. In this relation, the Ombudsman noted that the
PCGG failed to present "the documents which would directly establish the alleged illegal transactions like,
the Loan Agreement between DBP and Galleon, the approved Board Resolutions by the DBF
officers/board of directors, the participation/voting that transpired at the board meetings wherein the
alleged behest loans were granted."
The PCGG moved for reconsideration, which was, however, denied hence, this petition.

SC Ruling:

Corporations; Separate Legal Personality; As a general rule, a corporation has a separate and distinct
personality from those who represent it.—As a general rule, a corporation has a separate and distinct
personality from those who represent it. Its officers are solidarily liable only when exceptional
circumstances exist, such as cases enumerated in Section 31 of the Corporation Code. The liability of the
officers must be proven by evidence sufficient to overcome the burden of proof borne by the plaintiff.
Section 31 of the Corporation Code states: Sec. 31. Liability of Directors, Trustees or Officers.—Directors
or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or
who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable
jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons. From the foregoing it can be deduced that personal liability will only attach
to a director or officer if they are guilty of any of the following: (1) willfully or knowingly vote or assent to
patently unlawful acts of the corporation; (2) gross negligence; or (3) bad faith.

PCGG failed to allege in the complaint and in the present petition the particular acts of private
respondents which constitutes a violation of Sections 3(e) and (g) of R.A. No. 3019. It is not sufficient for
PCGG to merely provide a list of names of the PNB Board members for the years covering the subject
loans absent proof of the latter’s individual participation in the approval thereof.

5. UCPB vs Secretary of Justice, GR 209601, Jan. 12. 2021* (en banc)

CAGUIOA, J.:

At the outset, the Court notes that the purported "point of law still undecided in our jurisprudence - i.e.,
whether Section 144 of the Corporation Code, which provides penal sanctions for violations of 'any
provision of this Code or its amendments not otherwise specifically penalized therein,' is applicable to
violations under Section 31 of the same Code, which provides for a civil indemnity,"1 as posited by
petitioner, has, in fact, already been resolved by the Court in Ient v. Tullett Prebon (Philippines), Inc.2
(Ient). In this connection, the Court also notes at the outset that Batas Pambansa Blg. 68, otherwise
known as "The Corporation Code of the Philippines," has been repealed by Republic Act No.
112323otherwise known as the "Revised Corporation Code of the Philippines."

Facts

The CA Decision narrates the factual antecedents as follows:

 x x x [UCPB], through its Legal Services Division Head, x x x Jose A. Barcelon, filed the
Complaint-Affidavit dated 23 July 2007, for violation of Section 31 in relation to Section 144 of
the Corporation Code against private respondents [Tirso Antiporda Jr. (Antiporda) and Gloria
Carreon (Carreon)], docketed as I.S. No. 2007-633, before the [DOJ].

 The Complaint-Affidavit alleged: [Antiporda and Carreon] were [UCPB's] former Chairman and
Chief Executive Officer ("CEO"), and former President and Chief Operating Officer ("COO"),
respectively;

 UCPB Capital, Inc. ("UCAP"), a wholly owned subsidiary of [UCPB], was engaged in trading,
underwriting of securities and syndication of loans from 1996 to 1998;
 sometime in 1998, [Antiporda and Carreon] authorized the payment of bonuses, to some of
[UCPB's] corporate officers and directors, for this purpose, 50 manager's checks amounting to
Php 117,872,269.43 were released from 6 April to 31 July 1998;

 on 27 February 1998, due to substantial losses, [UCPB's] Board of Directors resolved to shorten
the corporate existence of UCAP effective 31 March 1998 and approved the takeover, purchase of
assets and assumption of liabilities of UCAP by [UCPB];

 when UCAP was absorbed by [UCPB], it had liabilities in the amount of Php 4.4 Billion;

 notwithstanding, [Antiporda's and Carreon's] knowledge of UCAP's losses, they declared bonuses
in 1998 in bad faith, with gross negligence and in violation of [UCPB's] by-laws which requires a
board authority prior to declaration of bonuses;

 thus, [Antiporda and Carreon] are liable under Section 31 of the Corporation Code which provides
for the liability of directors or officers who conduct the affairs of a corporation in bad faith; and,
[Antiporda and Carreon] are criminally liable under Section 144 which provides for penalties for
violations of the Corporation Code.

 [Antiporda] filed [a] Counter-Affidavit and alleged: his actions as Chairman and CEO were not
done in bad faith as he was merely guided by [UCPB's] audited Financial Statements, by-laws and
policies;

 [UCPB's] by-laws provided that 10% of [UCPB's] net profit is allot[t]ed as bonuses to its directors
and officers, and, what is subject to Board approval is only the manner by which [UCPB's]
President distributes the 4% of the net profit to other officers;

 it had been the practice of [UCPB] to pay bonuses without a board resolution; the [Bangko
Sentral ng Pilipinas (BSP)] examiners never questioned the absence of a board resolution in
[UCPB's] previous grant of bonuses;

 there was factual and legal basis in the payment of bonus since [UCPB's] financial statements in
1997 showed a consolidated net income of Php 2.115 billion; there was no evidence of [UCPB's]
losses amounting to Php 4.4 billion; the Php 4.4 billion losses referred by [UCPB] was due to
depreciation in the market values of the foreclosed real properties in 1998, thus, it is appropriate
to charge these losses to years 1999 to 2003;

 while UCAP suffered a loss in 1997, other subsidiaries and affiliates of [UCPB] earned profits in
excess of the Php 149 million loss incurred by UCAP, which formed the basis to declare bonuses
in 1998;

 UCAP's loss of Php 149 million in 1997 is a mere fraction of the Php 2.115 billion earned by
[UCPB], as the parent bank; and, the action had prescribed since the alleged violation was
committed in April 1998 and more than 9 years passed when the complaint was filed in 2007.

 Carreon filed [a] Counter-Affidavit and alleged: there was sufficient legal and factual justification
for the grant of bonuses since

o (a) it was expressly authorized by [UCPB's] by-laws,

o (b) it was the long-established policy and practice of [UCPB], and
o (c) the financial condition of [UCPB] allowed the grant of the bonuses;
 the bonuses given in a fiscal year are based on the net profit of [UCPB] in the immediately
preceding fiscal year, since [UCPB] had a net profit of Php 2.115 billion in 1997, there was a basis
of bonus in 1998;

 the allegation of substantial losses was contradicted by the audited financial statements of
[UCPB] for 1997 and 1998;
  the financial statements showing [UCPB's] losses were only released subsequent to her tenure
with [UCPB]; there is no evidence that UCAP incurred losses of Php 4.4 billion in 1997;

 assuming that there were losses, she could not have known, because both the internal auditors
and the independent auditors did not attest to the losses; she was not involved in the approval or
distribution of bonuses since her participation was limited in evaluating the officers' performance;
for the period covering her stay from 1993 to 1998, [UCPB's] internal and external auditors, and
the examiners of BSP never questioned the grant and distribution of the bonuses,
notwithstanding, the lack of a board resolution authorizing its grant; the presumption of regular
performance of duties (Section 3[p] and 3[q], Rule 131 of the Revised Rules of Evidence) should
operate in her favor; and, the action had prescribed.

 [UCPB] filed [a] Consolidated Reply-Affidavit and alleged: the release of the bonuses was
surreptitious since there was no board approval as certified by the Certification dated 9 January
2007;

 [Antiporda and Carreon] were aware of [UCPB's] losses since they participated in the board
meeting where UCAP's financial problems were discussed, particularly, the Php 4 billion
worth of UCAP's liabilities;

 [Antiporda] admitted in his counter-affidavit that he had knowledge of [UCPB's] losses;

 as high-ranking officers of [UCPB, Antiporda and Can-eon] cannot just rely on the findings of a
subordinate controller; x x x

 Carreon's argument that her participation was limited, was negated by the demands and the
seniority of her position and the bonuses will not be released without [Antiporda's and Carreon's]
authorization;

 while the 10% bonus is specifically authorized by [UCPB's] by-laws, the manner and the
procedure of the grant of the bonus[es] require the approval of the board of directors; the action
had not prescribed since the reckoning period is not the commission of the violation but from
discovery and institution of judicial proceedings, since, the issuance of bonuses was concealed
from [UCPB]; and, prescription should only run upon the discovery of the unauthorized payment
of bonuses through the special audit report of KPMG [o]n 30 June 2003.

 Antiporda] filed [a] Rejoinder Affidavit and alleged: [UCPB] did not refute that the grant and
release of the bonuses without a board resolution was a long-standing practice; [UCPB] did not
deny that it is the profits of [UCPB], as the parent bank, which were considered in granting the
bonuses; thus, the Php 2.115 billion profits of [UCPB] were sufficient basis for the bonus;
[UCPB's] financial statements showed that its losses through its assumption of liabilities from
UCAP only amounted to Php 140.860 million not Php 4.4 billion, since the Php 4.430 billion loss
did not appear in [UCPB's] audited financial statements in 1997 and 1998, it is logical to assume
that the losses did not exist at such time; the cumulative losses acquired through several years
could not affect the granting of the bonus in 1998 since the bonus in question was solely
dependent on the net profits in 1997; prescription must be based on the commission of the
alleged offense not on the discovery, since the grant of the bonus was publicly-known; the checks
for the bonuses were signed by the controller and were cleared by the auditor and distributed to
[UCPB's] directors and officers, thus, as early as 1998, [UCPB] had full knowledge of the facts of
the alleged offense; and, the alleged discovery of the offense on 30 June 2003, through the KPMG
report, was unsubstantiated. Carreon filed [a] Rejoinder Affidavit and alleged that the offense had
prescribed since the grant of the bonus could have been discovered since all the pertinent records
would have been available to [UCPB] in October 1998.

[UCPB] and [Antiporda] filed their respective Memoranda.

DOJ

On 8 April 2008, the DOJ Task Force On Bank Fraud Cases issued the Resolution, finding
probable cause against [Antiporda and Carreon] for violation of Section 31 in relation to Section
 144 of the Corporation Code. It held: the action was not barred by prescription since [UCPB's]
management discovered the unauthorized payment of bonuses only through the special audit
report of KPMG on 30 June 2003; a board resolution is required before the grant of bonus as
indicated in [UCPB's] by-laws; and, arguments raised by [Antiporda and Carreon] are matters of
defense which they will have to present during trial.

The corresponding Information was filed, docketed as Criminal Case No. 08-1106 before the
Regional Trial Court ("RTC"), Makati. [Antiporda] filed the

Petition for Review before the DOJ Secretary seeking to set aside the Resolution dated 8 April
2008, and praying the Information in Criminal Case No. 08-1106, be withdrawn.

It alleged: [UCPB] did not submit the KPMG special audit report as evidence; the Investigating
Prosecutor erred in disregarding the long standing practice of the bank in granting bonuses based
on [UCPB's] profits and without a board resolution; the practice of granting bonuses without a
board resolution was never questioned through the years, and was ratified by [UCPB's] Board of
directors; the BSP examiners did not cite the absence of a board resolution authorizing the
annual payment of bonuses as an audit exception; he acted in good faith in relying on [UCPB's]
practice that no board resolution is necessary; there was no finding that his acts indicated bad
faith or gross negligence, which is not presumed; there was no finding as to the presence of any of
the elements penalized under Section 31 of the Corporation Code; it was unfair that [Antiporda
and Carreon] were the only officers charged by [UCPB]; and [UCPB's] business is a heavily
regulated industry and whose operations were documented, thus, the discovery rule should not
be applied.

In the assailed 30 July 2008 Resolution, the DOJ Secretary ruled Section 144 was not applicable
to violations of Section 31 of the Corporation Code, and the action against [Antiporda and
Carreon] had prescribed. It held: the penalties in Section 144 of the Corporation Code apply, only
when the other provisions of the Corporation Code, do not provide penalties; since Section 31
provides for the remedy of civil action for damages, Section 144 does not apply anymore; the
act of "gross negligence and bad faith in directing the affairs of the corporation" can be
committed only by the directors and trustees of the corporation, thus, consistent with the
principle of strict construction of penal laws, [Antiporda and Carreon] as [UCPB's] officers, are not
liable; the action has prescribed since the alleged violation, which was committed by the payment
of the bonus in early 1998, occurred more than 9 years ago; the allegation that the grant of the
bonuses was only discovered through the KPMG audit report was unsubstantiated; the granting
of the bonuses was made in public, thus, as early as 1998, [UCPB] had full knowledge of the
offense and there was no need for the KPMG audit report; and, the findings of the DOJ Secretary
were equally applicable to Carreon although she failed to appeal.

The 30 July 2008 DOJ Secretary Resolution set aside the DOJ Task Force On Bank Fraud Cases
Resolution of 8 April 2008, and directed the Office of the Chief State Prosecutor to withdraw the
Information in Criminal Case No. 08-1106.

UCPB] filed the Motion for Reconsideration. [Antiporda and Carreon] separately filed their
Oppositions to [UCPB's] Motion for Reconsideration. [UCPB] filed [a] Consolidated-Reply (To
Respondents-Appellants' Oppositions). However, the DOJ Secretary denied the Motion for
Reconsideration in the assailed Resolution of 1 March 2010.

Thus, [UCPB filed a Rule 65 Petition for Certiorari [before the CA].9

Ruling of the CA

The CA, in its Decision of May 24, 2013, dismissed the Rule 65 certiorari petition of UCPB.

With the CA holding that Section 31 of the Corporation Code was clear and categorical, there was
therefore no room for construction or interpretation, but only for application

The CA observed that there would be no basis to subject directors, trustees, or corporate officers
liable under Section 31 to the penalties under Section 144 of the Corporation Case because
 Section 31 itself provides for the proper remedy, which is civil sanction for damages rather than
criminal sanction under Section 144.

According to the CA, by providing the remedy of damages, the legislative intent is clear that
Section 31 violations are excluded from the application of Section 144; and to apply Section 144
to acts committed under Section 31 would unduly extend its application to situations not
intended by the legislature and would also violate the principle of strict construction of penal
laws.

The CA also ruled that Antiporda and Carreon, as members of UCPB's Board of Directors, could
be held liable for violating Section 31 of the Corporation Code because Antiporda was sued in his
capacity as UCPB's Chairman of the Board while Carreon was sued in her capacity as Director,
which were their designations at the time of the alleged Section 31 violation.

Further, the CA ruled that the action for violation of Section 31 of the Corporation Code had
prescribed.

The CA disagreed with the DOJ Secretary in applying the provisions of Act No. 3326, specifically
Section 117 on the issue of prescription. The CA applied Article 1146 of the Civil Code because
Section 31 only provides for payment of damages as penalty to erring directors and not fine
and/or imprisonment.

Counting four years from the commission of the offense in 1998, and not from the KPMG special
audit report in 2003, which does not pertain to the financial losses suffered by UCPB at the time
of the approval of the bonuses in 1998 and does not support UCPB's allegation that it was only in
2003 when it could have discovered the offense committed by Antiporda and Carreon, the action
had prescribed in 2002.21 Thus, when the Complaint-Affidavit of UCPB was filed on July 23,
2007, the action had already prescribed. Also, the discovery rule was inapplicable given that the
approval and grant of the questioned bonuses were widely and publicly known and that UCPB
belongs to the heavily-regulated banking industry whose transactions are documented and
audited by the BSP on a regular basis. Finally, the CA ruled that the DOJ Secretary did not
commit grave abuse of discretion amounting to lack or excess of jurisdiction when he dismissed
UCPB's complaint and ordered the withdrawal of the Information.24 The dispositive portion of the
CA Decision states:

WHEREFORE, the Petition For Certiorari is DISMISSED. The Resolution dated 30 July 2008, and the
Resolution dated 1 March 2010, are AFFIRMED.

SO ORDERED.25

Not satisfied, UCPB filed a Motion for Partial Reconsideration,26which the CA denied in its Resolution27
dated October 17, 2013.

Hence, the present UCPB's Rule 45 certiorari Petition dated December 13, 2013. Antiporda filed his
Comment28 dated March 18, 2014. Carreon filed her Comment29 dated March 19, 2014. UCPB filed its
Consolidated Reply30 dated June 5, 2014. Antiporda filed his Memorandum31 dated April 13, 2015,
while Carreon filed her Memorandum32 dated April 23, 2015. UCPB filed its Memorandum33 dated May
11, 2015.

The Issues

The Petition raises two issues:

(1) whether the CA erred in ruling that Section 144 of the Corporation Code does not apply to
Section 31 thereof; and

(2) whether the CA erred in ruling that the action based on Section 31 of the Corporation Code
had prescribed.

The Ruling of the Court

The present case calls for the application of Sections 31 and 144 of the Corporation Code.

As noted at the outset, the Corporation Code has been repealed by the Revised Corporation Code (RCC),
which became effective on February 23, 2019. Despite the passage of the later law, the former is to be
applied in this case because the alleged violation committed by Antiporda and Carreon happened in 1998
while the Corporation Code was in effect.

Section 31 of the Corporation Code provides:

SECTION 31. Liability of Directors, Trustees or Officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary
interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest
adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to
which equity imposes a disability upon him to deal on his own behalf, he shall be liable as a trustee for
the corporation and must account for the profits which otherwise would have accrued to the corporation.

The counterpart provision in the RCC is Section 30, which states:

SEC. 30. Liability of Directors, Trustees or Officers. - Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members and other persons.

A director, trustee or officer shall not attempt to acquire or acquire [ ] any interest adverse to the
corporation in respect of any matter which has been reposed in them in confidence, and upon which,
equity imposes a disability upon themselves to deal in their own behalf; otherwise the said director,
trustee or officer shall be liable as a trustee for the corporation and must account for the profits which
otherwise would have accrued to the corporation.34

Section 144 of the Corporation Code, in turn, provides:

SECTION 144. Violations of the Code. - Violations of any of the provisions of this Code or its amendments
not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand
(P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment for not less
than thirty (30) days but not more than five (5) years, or both, in the discretion of the court. If the
violation is committed by a corporation, the same may, after notice and hearing, be dissolved in
appropriate proceedings before the Securities and Exchange Commission: Provided, That such dissolution
shall not preclude the institution of appropriate action against the director, trustee or officer of the
corporation responsible for said violation: Provided, further, That nothing in this section shall be
construed to repeal the other causes for dissolution of a corporation provided in this Code.

The counterpart provision in the RCC is Section 170, which states:

SEC. 170. Other Violations of the Code; Separate Liability. - Violations of any of the other provisions of
this Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of
not less than Ten thousand pesos (P10,000.00) but not more than One million pesos (PI,000,000.00) [ ]. If
the violation is committed by a corporation, the same may, after notice and hearing, be dissolved in
appropriate proceedings before the [ ] Commission: Provided, That such dissolution shall not preclude the
institution of appropriate action against the director, trustee, or officer of the corporation responsible for
said violation: Provided, further, That nothing in this section shall be construed to repeal the other causes
for dissolution of a corporation provided in this Code.

Liability for any of the foregoing offenses shall be separate from any other administrative, civil, or criminal
liability under this Code and other laws.35
Proceeding to the first issue, UCPB argues that the civil sanction for damages under Section 31 of the
Corporation Code is not the same as the imposition of penalty because damages refer to the sum of
money that the law awards or imposes as pecuniary compensation, recompense or satisfaction for an
injury done or a wrong sustained as a consequence of a breach of a contractual obligation, a tortious act
or an illegal act while a penalty is the suffering inflicted by the State for the transgression of a law

Citing Ramos v. Gonong, UCPB posits that civil liability is not part of the penalty of the crime committed
and when it is imposed for the commission of crimes, it is neither part of, nor intended to be merged into,
the punishment of the crime.38

UCPB further argues that since Section 31 of the Corporation Code refers to "all damages x x x suffered
by the corporation" and considering that civil liability is not a penalty for the commission of a crime, the
violation of Section 31 is not, by the words used in Section 144 of the Corporation Code, "specifically
penalized therein." UCPB thus concludes that Section 144 should apply.

Moreover, UCPB cites the Decision of the Special Third Division of the CA in Ient v. Gonzalez and Tullett
Prebon wherein the DOJ Secretary's directive to file an Information against corporate directors and
officers for violation of Sections 31 and 34 in relation to Section 144 of the Corporation Code was upheld.

UCPB's arguments are not persuasive enough for the Court to overturn or abandon its ruling in Ient.

As mentioned at the outset, the Court has already ruled in Ient on the issue of the applicability of Section
144 to Section 31 of the Corporation Code. The Court, applying the rule of lenity, ruled in Ient that any
violation of Section 31 of the Corporation Code was not considered as a violation of any provision of such
Code not otherwise specifically penalized therein pursuant to Section 144. In other words, Section 144
did not apply to or include in its coverage Section 31 of the Corporation Code.

The Court justified its ruling in Ient, as follows:

After a meticulous consideration of the arguments presented by both sides, the Court comes to the
conclusion that there is a textual ambiguity in Section 144; moreover, such ambiguity remains even after
an examination of its legislative history and the use of other aids to statutory construction, necessitating
the application of the rule of lenity in the case at bar.

xxxx

There is no provision in the Corporation Code using similarly emphatic language that evinces a
categorical legislative intent to treat as a criminal offense each and every violation of that law.
Consequently, there is no compelling reason for the Court to construe Section 144 as similarly employing
the term "penalized" or "penalty" solely in terms of criminal liability.

xxxx

x x x We agree with petitioners that the lack of specific language imposing criminal liability in
Sections 31 and 34 shows legislative intent to limit the consequences of their violation to the
civil liabilities mentioned therein. Had it been the intention of the drafters of the law to define Sections
31 and 34 as offenses, they could have easily included similar language as that found in Section 74.

xxxx

xxx Sections 31 to 34 were introduced into the Corporation Code to define what acts are covered, as well
as the consequences of such acts or omissions amounting to a failure to fulfill a director's or corporate
officer's fiduciary duties to the corporation. A closer look at the subsequent deliberations on [Cabinet Bill
(C.B.)] No. 3 [(the bill that was enacted into the Corporation Code)], particularly in relation to Sections 31
and 34, would show that the discussions focused on the civil liabilities or consequences prescribed in
said provisions themselves.

xxxx

x x x Verily, in the instances that Sections 31 and 34 were taken up on the floor, legislators did not veer
away from the civil consequences as stated within the four corners of these provisions. Contrasted with
the interpellations on Section 74 (regarding the right to inspect the corporate records), the discussions on
said provision leave no doubt that legislators intended both civil and penal liabilities to attach to
corporate officers who violate the same x x x.

xxxx

Quite apart that no legislative intent to criminalize Sections 31 and 34 was manifested in the
deliberations on the Corporation Code, it is noteworthy from the same deliberations that legislators
intended to codify the common law concepts of corporate opportunity and fiduciary obligations of
corporate officers as found in American jurisprudence into said provisions. In common law, the remedies
available in the event of a breach of director's fiduciary duties to the corporation are civil remedies. If a
director or officer is found to have breached his duty of loyalty, an injunction may be issued or damages
may be awarded. A corporate officer guilty of fraud or mismanagement may be held liable for lost profits.
A disloyal agent may also suffer forfeiture of his compensation. There is nothing in the deliberations to
indicate that drafters of the Corporation Code intended to deviate from common law practice and enforce
the fiduciary obligations of directors and corporate officers through penal sanction aside from civil
liability. On the contrary, there appears to be a concern among the drafters of the Corporation Code that
even the imposition of the civil sanctions under Sections 31 and 34 might discourage competent persons
from serving as directors in corporations.

xxxx

The Corporation Code was intended as a regulatory measure, not primarily as a penal statute. ℒαwρhi ৷
Sections 31 [and] 34 in particular were intended to impose exacting standards of fidelity on corporate
officers and directors but without unduly impeding them in the discharge of their work with concerns of
litigation. Considering the object and policy of the Corporation Code to encourage the use of the corporate
entity as a vehicle for economic growth, we cannot espouse a strict construction of Sections 31 and 34 as
penal offenses in relation to Section 144 in the absence of unambiguous statutory language and
legislative intent to that effect. When Congress intends to criminalize certain acts it does so in plain,
categorical language, otherwise such a statute would be susceptible to constitutional attack. As earlier
discussed, this can be readily seen from the text of Section 45(j) of Republic Act No. 8189 and Section 74
of the Corporation Code. We stress that had the Legislature intended to attach penal sanctions to
Sections 31 and 34 of the Corporation Code it could have expressly stated such intent in the same
manner that it did for Section 74 of the same Code.48

In view of the foregoing, the Court finds that the CA did not err in ruling that Section 144 of the
Corporation Code did not cover or apply to Section 31 of the same Code. With the passage of the RCC, will
the Court arrive at the same ruling on the first issue as it did in Ient using the same legal framework? The
answer will depend upon the factual milieu of the proceeding before the Court wherein the issue on the
coverage or applicability of Section 170 to Section 30 of the RCC will be resolved. However, it must be
noted, that under the RCC, there is now a provision on administrative sanctions that the Securities and
Exchange Commission (Commission) can impose if, after due notice and hearing, it finds that any
provision of the RCC has been violated, viz.:

SEC. 158. Administrative Sanctions. - If, after due notice and hearing, the Commission finds that any
provision of this Code, rules or regulations, or any of the Commission's orders has been violated, the
Commission may impose any or all of the following sanctions, taking into consideration the extent of
participation, nature, effects, frequency and seriousness of the violation:

(a) Imposition of a fine ranging from Five thousand pesos (P5,000.00) to Two million pesos
(P2,000,000.00), and not more than One thousand pesos (P1,000.00) for each day of continuing violation
but in no case to exceed Two million pesos (P2,000,000.00);

(b) Issuance of a permanent cease and desist order;

(c) Suspension or revocation of the certificate of incorporation; and

(d) Dissolution of the corporation and forfeiture of its assets under the conditions in Title XIV of this Code.

The Court notes that the wording of the RCC reinforces the Court's interpretation that a violation of
Section 31 of the Corporation Code, now Section 30 of the RCC, is not covered by Section 144 of the
Corporation Code, now Section 170 of the RCC. While Section 170 of the RCC now clarifies that the said
Section applies to "Other Violations of the Code" or "[violations of any of the other provisions of this Code
or its amendments not otherwise specifically penalized therein" and provides for "Separate Liability" to the
effect that "[l]iability for any of the foregoing offenses [or such violations] shall be separate from any other
administrative, civil, or criminal liability under this Code and other laws," such language is still
consistent with the violations contemplated under Section 144 of the Corporation Code - "[v]iolations of
any of the provisions of this Code or its amendments not otherwise specifically penalized therein," the
operative phrase "not otherwise specifically penalized therein" being retained. Also, the civil liability
provided under Section 31 of the Corporation Code - "liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members and other persons" and "liable as a
trustee for the corporation and must account for the profits which otherwise would have accrued to the
corporation" - is phrased similarly in Section 30 of the RCC. In either Section, no administrative or
criminal liability is provided. However, as stated earlier, under the RCC, there is now Section 158 on
administrative sanctions, above quoted, that the Commission can impose if, after due notice and hearing,
it finds that any provision of the RCC has been violated.

Thus, under the RCC, the Commission has now the authority to impose any or all of the foregoing
sanctions in case "any provision of [the RCC,] rules or regulations, or any of the Commission's orders has
been violated x x x, taking into consideration the extent of participation, nature, effects, frequency and
seriousness of the violation."

As to the second issue, UCPB's argument is anchored on the applicability of Section 144 of the
Corporation Code to Section 31.49 Since Section 144 provided as penalty imprisonment for not less than
30 days but not more than 5 years, then the period of prescription, according to UCPB, should be 8 years
for violations penalized under special laws by imprisonment for 2 years or more, but less than 6 years
pursuant to Act No. 3326.50 Citing Section 2 of Act No. 3326, which provides that "[prescription shall
begin to run from the day of the commission of the violation of the law, and if the same be not known at
the time, from the discovery thereof and the institution of judicial proceedings for its investigation and
punishment," UCPB posits that at the time of the commission of the alleged violation in 1998, there was
no way that it could have taken action on the undue payment of bonuses because the recipients of the
bonuses comprised the management of the bank with Antiporda and Carreon being the top two officers,
and even when the bank changed administrations, i.e., from the administration of Antiporda and Carreon
to the next administration, there was no way the new administration could have taken action against
Antiporda and Carreon until it had evidentiary basis, which came through only with the KPMG report of
2003.51 To UCPB, the prescriptive period should have started to run only in 2003 when UCPB allegedly
discovered the undue payment of bonuses from the KPMG report.52

The Court having already ruled on the first issue that Section 144 of the Corporation Code did not include
violations of Section 31 as "[violations of any provisions of [that] Code or its amendments not otherwise
specifically penalize therein," wherein imprisonment for not less than 30 days but not more than 5 years
was the imposable penalty, then Act No. 3326 is not the applicable law on prescription.

The liability of the erring director, trustee or officer under Section 31 of the Corporation Code being purely
civil, i.e., "all damages resulting [from its violation] suffered by the corporation, its stockholders or
members and other persons," the Court holds that it is the Civil Code that is the controlling law. The
Court thus agrees with the CA that it is Article 1146 of the Civil Code which determines the prescriptive
period. It provides:

ART. 1146. The following actions must be instituted within four years:

(1) Upon an injury to the rights of the plaintiff;

(2) Upon a quasi-delict. (n)

To recall, the questioned bonuses were paid through 50 manager's checks amounting to
P117,872,269.43, which were released to the concerned UCPB corporate officers and directors from April
6 to July 31, 1998. The KPMG special audit report53 was dated June 30, 2003. The Complaint-Affidavit
of UCPB is dated July 23, 2007 and filed on even date with the DOJ.54

Even if the Court were to uphold UCPB's actual discovery theory, the action upon the injury to its right
under Section 31 of the Corporation Code or the damages that it had suffered by virtue of the alleged
unauthorized payment of bonuses had prescribed on July 1, 2007 or four years from June 30, 2003, the
purported day of actual discovery by UCPB. This is pursuant to Commissioner of Internal Revenue v.
Primetown Property Group, Inc.,55 where the Court held that Section 31 of the Administrative Code of
1987, which provides that "year" shall be understood to be twelve calendar months, governs the
computation of periods, being the more recent law as compared to the Article 13 of the Civil Code, which
provides that a year consists of 365 days. When UCPB thus filed its Complaint-Affidavit on July 23, 2007,
the four years or 48 calendar months prescriptive period had already lapsed.ℒαwρhi ৷

Under Article 1155 of the Civil Code, the prescription of actions is interrupted when they are filed before
the court, when there is a written extrajudicial demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor. The filing of the Complaint-Affidavit by UCPB with the DOJ
did not interrupt the prescription of its action not only because this was beyond the 48 calendar months
prescriptive period based on Section 31 of the Corporation Code, but also because it was not filed before
the proper court and finally because the Complaint-Affidavit cannot even be deemed as an extrajudicial
demand for damages given its prayer: "On the basis of the foregoing, [Antiporda and Carreon] should be
held liable under Section 31, in relation to Section 144 of the Corporation Code for being guilty of gross
bad faith/and/or gross negligence in directing the affairs of the corporation."56 Put simply, UCPB did not
make a claim for any damage in the Complaint-Affidavit it filed.

Regarding the KPMG special audit report, the Court cannot make a determination based on the
"Executive Summary"57 thereof, which UCPB attached to its Petition, that UCPB came to know of the
payment of the questioned bonuses only on June 30, 2003. The "Executive Summary" merely mentions
that UCPB "has been incurring net losses since 2000 x x x [and] its Audit Committee has recommended a
special audit to determine the performance and accountabilities of the BOD and management, as
appropriate, from 1986 to 2002;"58 and the primary objective of the special audit is: "to evaluate the
performance and establish accountabilities of the BOD and management from 1986 to 2002.59 The
unauthorized payment of the bonuses was not even mentioned therein. Thus, the actual discovery theory
of UCPB does not even appear to have a factual leg to stand on.

Given that there is no factual basis from which actual discovery of the payment of the questioned bonuses
by UCPB, assuming the same to have been concealed by Antiporda and Carreon, can be based and that,
according to the CA, said payment had been widely and publicly known given that UCPB belongs to the
heavily-regulated banking industry whose transactions are documented and audited by the BSP on a
regular basis, the filing of the action for damages based on Section 31 of the Corporation Code had
already prescribed 48 calendar months or 4 years from July 31, 1998, the last release date of the 50
manager's checks, at the latest.

Parenthetically, if the second issue is to be resolved under the aegis of the RCC and assuming that
Section 170 applies to Section 30 of the RCC, prosecution of any violation of Section 30 prescribes in a
year or 12 calendar months pursuant to Section 1, Act No. 3326, given that the penalty of any Section 30
violation is fine only.

WHEREFORE, the Petition is hereby DENIED. The Decision dated May 24, 2013 and the Resolution dated
October 17, 2013 of the Court of Appeals in CA-G.R. S.P. No. 114184 are AFFIRMED.

SO ORDERED. Peralta, C.J., (Chairperson), Carandang, Zalameda, and Gaerlan, JJ., concur.

6. Guth vs Loft, Inc. 5 A.2d 503 Ch. 255 (Del. 1939)

7. TOPROS vs Chang. GR. 200070-71, Dec. 7. 2021 * (elements

8. Ago Roalty vs Ago, GR 210906. Oct. 16. 2019°

9. Metroplex Berhad vs Sinophil, GR 208281, June 28, 2021'

10. Salido vs Aramaywan Metals, GR 233857. March 18, 2021*

11. China Bank
 Facts:

[On August 21, 1974, Galicano Calapatia, a stockholder of private respondent Valley Gold and Country
Club pledged his Stock Certificate No. 1219 to petitioner China Bank Corporation.

The petitioner bank wrote a letter requesting that the said agreement be recorded on its books. In
a letter dated September 27, 1974 the VGCCI replied the aforementioned letter that the said deed of
pledge executed in favor of the petitioner was duly noted on its corporate books.

On August 3, 1983, Calapatia obtained a loan of P20,000.00 from the petitioner which was
secure by the aforementioned pledge agreement still existing between the parties. Calapatia's failure to
pay his obligation, petitioner filed an extrajudicial foreclosure before a Notary Public, requesting for public
auction of the said stock.

Petitioner bank informed VGCCI of the foreclosure proceedings and requested the pledged shares
of stock be transferred on its name and be recorded on the corporate books. In return, VGCCI wrote a
letter expressing its inability to grant the petitioner's request due to Calapatia's inability to settle its
account with the club.

Despite the notice, the Notary Public de Vera held a public auction on September 17, 1985, and
the petitioner became the highest bidder of P 20,000.00. The petitioner thereafter was issued a certificate
of sale.
VGCCI sent a notice demanding full payment of his overdue account in the amount of P 18, 783.24 and
later on was followed by a demand letter dated December 12,1985. On December 4, 1986, VGCCI caused
to be published in the newspaper Daily Express a notice of auction sale of a number of its stock
certificates, to be held on 10 December 1986 at 10:00 a.m. Included therein was Calapatia's own
share of stock (Stock Certificate No. 1219).
VGCCI claims a prior right over the subject share anchored mainly on Sec. 3, Art VIII of its by-laws
which provides that "after a member shall have been posted as delinquent, the Board may order
his/her/its share sold to satisfy the claims of the Club. . ." ¡¡¡¡ It is pursuant to this provision that
VGCCI also sold the subject share at public auction, of which it was the highest bidder. VGCCI caps
its argument by asserting that its corporate by-laws should prevail.
CBC protested the sale by VGCCI of the subject share of stock and thereafter filed a case with the
Regional Trial Court of Makati for the nullification of the 1986 auction and for the issuance of a new
stock¡ certificate in its name.
The trial court dismissed the casefor ack of jurisdiction.
The Securities and Exchange Commission (SEC) ruled in favor of CBC.
The Commission en banc believes that appellant-petitioner has a prior right over the
pledged share and because of pledgor's failure to pay the principal debt upon maturity, appellant-
petitioner can proceed with the foreclosure of the pledged share.
The Court of Appeals rendered its decision nullifying and setting aside the orders of the
Indeed, the controversy between petitioner and respondent bank which involves ownership of the
stock that used to belong to Calapatia, Jr. is not within the competence of respondent Commission to
decide. It is not any of those mentioned in the aforecited cases of intracorporate dispute
Issue:

WON the SEC has jurisdiction

WON the By Laws is binding with the China Bank

Ruling:

In order to be bound, the third party must have acquired knowledge of the
pertinent by-laws at the time the transaction or agreement between said third party
and the shareholder was entered into, in this case, at the time the pledge
agreement was executed.
 VGCCI could have easily informed petitioner of its by-laws when it sent notice
formally recognizing petitioner as pledgee of one of its shares registered in Calapatia's
name.

Petitioner's belated notice of said by-laws at the time of foreclosure will not
suffice. The ruling of the SEC en banc is particularly instructive:

By-laws signifies the rules and regulations or private laws enacted by the corporation
to regulate, govern and control its own actions, affairs and concerns and its
stockholders or members and directors and officers with relation thereto and among
themselves in their relation to it.

In other words, by-laws are the relatively permanent and continuing rules of action
adopted by the corporation for its own government and that of the individuals
composing it and having the direction, management and control of its affairs, in whole
or in part, in the management and control of its affairs and activities. (9 Fletcher
4166, 1982 Ed.)

The purpose of a by-law is to regulate the conduct and define the duties of the
members towards the corporation and among themselves. They are self-imposed and,
although adopted pursuant to statutory authority, have no status as public law. (Ibid.)

Therefore, it is the generally accepted rule that third persons are not bound by by-
laws, except when they have knowledge of the provisions either actually or
constructively. In the case of Fleisher v. Botica Nolasco, 47 Phil. 584, the Supreme
Court held that the by-law restricting the transfer of shares cannot have any effect on
the transferee of the shares in question as he "had no knowledge of such by-law when
the shares were assigned to him. He obtained them in good faith and for a valuable
consideration. He was not a privy to the contract created by the by-law between the
shareholder . . . and the Botica Nolasco, Inc. Said by-law cannot operate to defeat his
right as a purchaser. (Emphasis supplied.)

By analogy of the above-cited case, the Commission en banc is of the opinion that said
case is applicable to the present controversy. Appellant-petitioner bank as a third
party can not be bound by appellee-respondent's by-laws. It must be recalled that
when appellee-respondent communicated to appellant-petitioner bank that the pledge
agreement was duly noted in the club's books there was no mention of the
shareholder-pledgor's unpaid accounts. The transcript of stenographic notes of the
June 25, 1991 Hearing reveals that the pledgor became delinquent only in 1975.
Thus, appellant-petitioner was in good faith when the pledge agreement was
contracted.

The Commission en banc also believes that for the exception to the general accepted
rule that third persons are not bound by by-laws to be applicable and binding upon
the pledgee, knowledge of the provisions of the VGCI By-laws must be acquired at the
time the pledge agreement was contracted. Knowledge of said provisions, either actual
or constructive, at the time of foreclosure will not affect pledgee's right over the
pledged share. Art. 2087 of the Civil Code provides that it is also of the essence of
these contracts that when the principal obligation becomes due, the things in which
the pledge or mortgage consists maybe alienated for the payment to the creditor.

In a letter dated March 10, 1976 addressed to Valley Golf Club, Inc., the Commission
issued an opinion to the effect that:

According to the weight of authority, the pledgee's right is entitled to full protection
without surrender of the certificate, their cancellation, and the issuance to him of new
ones, and when done, the pledgee will be fully protected against a subsequent
purchaser who would be charged with constructive notice that the certificate is
covered by the pledge. (12-A Fletcher 502)

The pledgee is entitled to retain possession of the stock until the pledgor pays or
tenders to him the amount due on the debt secured. In other words, the pledgee has
the right to resort to its collateral for the payment of the debts. (Ibid, 502)

To cancel the pledged certificate outright and the issuance of new certificate to a third
person who purchased the same certificate covered by the pledge, will certainly defeat
the right of the pledgee to resort to its collateral for the payment of the debt. The
pledgor or his representative or registered stockholders has no right to require a
return of the pledged stock until the debt for which it was given as security is paid and
satisfied, regardless of the length of time which have elapsed since debt was created.
(12-A Fletcher 409)

A bona fide pledgee takes free from any latent or secret equities or liens in favor either
of the corporation or of third persons, if he has no notice thereof, but not otherwise.
He also takes it free of liens or claims that may subsequently arise in favor of the
corporation if it has notice of the pledge, although no demand for a transfer of the
stock to the pledgee on the corporate books has been made. (12-A Fletcher 5634, 1982
ed., citing Snyder v. Eagle Fruit Co., 75 F2d739) 38

Similarly, VGCCI's contention that petitioner is duty-bound to know its by-laws

because of Art. 2099 of the Civil Code which stipulates that the creditor must take
care of the thing pledged with the diligence of a good father of a family, fails to
convince. The case of Cruz & Serrano v. Chua A. H. Lee, 39 is clearly not applicable:

In applying this provision to the situation before us it must be borne in mind that the
ordinary pawn ticket is a document by virtue of which the property in the thing
pledged passes from hand to hand by mere delivery of the ticket; and the contract of
the pledge is, therefore, absolvable to bearer. It results that one who takes a pawn
ticket in pledge acquires domination over the pledge; and it is the holder who must
renew the pledge, if it is to be kept alive.

It is quite obvious from the aforequoted case that a membership share is quite
different in character from a pawn ticket and to reiterate, petitioner was never
informed of Calapatia's unpaid accounts and the restrictive provisions in VGCCI's by-
laws.

Finally, Sec. 63 of the Corporation Code which provides that "no shares of stock
against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers
to "any unpaid claim arising from unpaid subscription, and not to any indebtedness
which a subscriber or stockholder may owe the corporation arising from any other
transaction." 40 In the case at bar, the subscription for the share in question has been
fully paid as evidenced by the issuance of Membership Certificate No. 1219. 41 What
Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted
provision does not apply.

12.PMI Collegesvs NLRC

FACTS:
1. On July 7, 1991, petitioner hired private respondent as contractual instructor. Pursuant to
this engagement, private respondent then organized classes in marine engineering.
2. Initially, private respondent and other instructors were compensated for services rendered
during the first three periods of the abovementioned contract.
3. However, for reasons unknown to private respondent, he stopped receiving payment for
the succeeding rendition of services.
4. This claim of nonpayment was embodied in a letter. However the salary of private
respondent corresponding to the shipyard and plant visits and the ongoing on the job
training of Class 41 on board MV Sweet Glory of Sweet Lines, Inc. was not yet included.
5. Private respondent’s claims, as expected, were resisted by petitioner.
6. It alleged that classes in the courses offered which complainant claimed to have remained
unpaid were not held or conducted in the school premises of PMI Colleges.
7. Petitioner maintained that it exercised no appropriate and proper supervision of the said
classes which activities allegedly violated certain rules and regulations of the DECS.
8. Later in the proceedings, petitioner manifested that Mr. Tomas G. Cloma, Jr., a member
of the petitioners Board of Trustees wrote a letter to the Chairman of the Board on May
23, 1994, clarifying the case of private respondent and stating therein, inter alia, that
under petitioners bylaws only the Chairman is authorized to sign any contract and that
private respondent, in any event, failed to submit documents on the alleged shipyard and
plant visits in Cavite Naval Base.

ISSUE:
            Whether or not the contract of employment is invalid

RULING:
            The court cannot concede that such contract would be invalid just because the signatory
thereon was not the Chairman of the Board which allegedly violated petitioner’s bylaws. Since
bylaws operate merely as internal rules among the stockholders, they cannot affect or prejudice
third persons who deal with the corporation, unless they have knowledge of the same. No proof
appears on record that private respondent ever knew anything about the provisions of said
bylaws.
 In fact, petitioner itself merely asserts the same without even bothering to attach a copy
or excerpt thereof to show that there is such a provision. How can it now expect the Labor
Arbiter and the NLRC to believe it? That this allegation has never been denied by private
respondent does not necessarily signify admission of its existence because technicalities of law
and procedure and the rules obtaining in the courts of law do not strictly apply to proceedings of
this nature.