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Case digest · Disloyalty of a director; civil, not criminal, liability under the old Code
Ient, et al. vs. Tullett Prebon (Philippines), Inc.
A broker firm accused its former President and a former director of orchestrating the mass resignation of its brokers to join a new competitor, and it sought criminal charges. On the merits, the Supreme Court decided one question: was violating Secs. 31 and 34 of the old Corporation Code a crime?
Facts
The competitors
Tullett Prebon (Philippines), Inc. and the Tradition Group are competitors in the inter-dealer broking business; in the Philippines, their clients are mainly banks and financial institutions. Tullett had been in that business in the Philippines since 1995. In August 2008, the Tradition Group tasked the two petitioners, who worked for Tradition companies in Singapore and London, with setting up a Philippine subsidiary, Tradition Financial Services Philippines, Inc. (Tradition Philippines), which was registered with the SEC on September 19, 2008.
The complaint
On October 15, 2008, Tullett filed a complaint for violation of Secs. 31 and 34 of the Corporation Code against its former President and Managing Director, a former member of its board of directors, the two petitioners and others. Tullett alleged that its former President and its former director used their former positions to sabotage the company by orchestrating the mass resignation of its entire brokering staff to join Tradition Philippines. Tullett charged the petitioners, who worked for Tradition companies, as alleged conspirators.
Their side
The former President said that frustration with management changes led to his personal decision to move. The former director said she left simply to seek greener pastures. On the Tradition side, it was claimed that Tradition came to the Philippines in good faith to foster healthy competition.
2009
On February 17, 2009, the Acting City Prosecutor of Makati City dismissed the complaints, reasoning, among other things, that even if the brokers had been induced to leave, it could give rise only to civil liability. On April 23, 2009, the Secretary of Justice reversed and directed the filing of charges, and two Informations, one for violation of Sec. 31 and one for violation of Sec. 34, were filed in the Metropolitan Trial Court of Makati City on May 14, 2009. On August 12, 2009, the Court of Appeals sided with the Secretary of Justice.
Issue
Do violations of Secs. 31 and 34 of the Corporation Code (B.P. Blg. 68) carry criminal liability under its Sec. 144?
Ruling
No. The Court held that violations of Secs. 31 and 34 carried only the civil liabilities stated in those sections. It reversed and set aside the Court of Appeals’ decision and the Secretary of Justice’s resolutions.
Sec. 144 of the old Code punished violations of the Code “not otherwise specifically penalized therein” with a fine of P1,000.00 to P10,000.00, imprisonment of 30 days to 5 years, or both. The Court treated whether that catch-all clause reached Secs. 31 and 34 as a legal issue of first impression. It found Sec. 144 ambiguous even after studying its legislative history, and resolved the doubt in favor of the accused under the rule of lenity. Of the Code’s provisions with non-penal consequences that it reviewed, only Sec. 74 expressly made its violation an offense under Sec. 144; Secs. 31 and 34 did not, and in the 1979–1980 Batasan debates on those sections, the legislators kept to their civil consequences. The Court stressed: “The Corporation Code was intended as a regulatory measure, not primarily as a penal statute.” It read the absence of specific language imposing criminal liability as an intent to limit the consequences to civil liability. The Court did not decide whether anyone was disloyal, or whether the resignations were orchestrated; those remained Tullett’s allegations. Nor did it hold that leaving for a competitor is always allowed, or that there is no civil liability.
“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.”
Doctrine
Criminal liability needs clear words: “When Congress intends to criminalize certain acts it does so in plain, categorical language, otherwise such a statute would be susceptible to constitutional attack.” Under the old Code, a director’s disloyalty under Sec. 34 led to the civil remedy written in that section: account for and refund the profits. The Revised Corporation Code’s counterpart catch-all, Sec. 170, provides in its text a fine of P10,000.00 to P1,000,000.00 and no imprisonment, but the Supreme Court has not yet directly decided whether a violation of Sec. 33 is a crime under the new Code. Separately, Sec. 158 now allows the SEC to impose administrative sanctions “after due notice and hearing,” including a fine of up to P2,000,000.00.
Compare: the civil route
In Total Office Products and Services (TOPROS), Inc. vs. John Charles Chang, Jr., et al., G.R. Nos. 200070-71, December 7, 2021, the corporation pursued the civil claim under Sec. 34, and the Court held that the doctrine of corporate opportunity “applies in the case.” It left the exact liability for the trial court to determine.
Bar tip
Keep the remedies apart. Under the old Corporation Code, violating Secs. 31 and 34 led to civil liability, not a criminal case under Sec. 144. Under the Revised Corporation Code, cite Sec. 33 for the civil remedy and Sec. 158 for SEC administrative sanctions after notice and hearing, and note that the Supreme Court has not yet directly decided whether a Sec. 33 violation is a crime under Sec. 170.
Hear it explained
Corporate Opportunity, Podcast Ep. 8, at 9:51
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This digest is general legal information for education, not legal advice, and it is not a substitute for reading the decision. Quoted passages are taken word for word from the full text.