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THE PENAL PROVISION UNDER SEC.

144
OF THE CORPORATION CODE
by CESAR L. VILLANUEVA, B.S.C., LL.B, LL.M.
Sec. 144, at near the end of the Corporation Code, provides that "SEC. 144. Violations of the Code.--Violations of any of the provisions of this Code or 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 the 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 officers 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. (190-1/7a)."
Under Sec. 27 of the Code, a person convicted by final judgment of a violation of the Code
committed within five (5) years prior to the date of his election or appointment, shall not be qualified as a
director, trustee or officer of any corporation.
In-depth discussions on the proper interpretation and coverage of Sec. 144 of the Corporation Code
is essential since it provides for criminal penalties for violations of "any" of the provisions of the Corporation
Code, and therefore seems to over-criminalize the provisions of that law. The broad language of Sec. 144,
unless properly applied, presents a codal land mine that could maim or harm the actors in the corporate
setting, or would tend to put at risk many of the actuations and decisions of the directors, trustees, and
corporate officers, as to necessarily cramp the exercise of their business judgment.
Lately, practitioners have began to look at the seemingly all-encompassing provisions of Sec. 144 to
effectively obtain results on their demands or claims against the corporation, by dangling a threat of criminal
suit against corporate directors and officers.
Criminal Law Principles
To effectively render a proper interpretation of the extent and reach of Sec. 144, which is essentially
a criminal law provision, it is necessary to view the section in line with prevailing Philippine Criminal Law
principles.
Although the Corporation Code was essentially derived from common law jurisprudence and
legislation from the United States, nevertheless, it has been long held by our Supreme Court that the socalled common law crimes known in the United States and England as the body of principles, usages and
rules of action, which do not rest for their authority upon any express and positive declaration of the will of
the legislature, are not recognized in the Philippines. Unless there be a particular provision in the penal code
or special penal law that defines and punishes the act, even if it be socially or morally wrong, no criminal
liability is incurred by its commission.
We have therefore in Philippine jurisdiction one of the fundamental rules of construction of Criminal
Law, that penal laws are strictly construed against the State and liberally in favor of the accused. Although it
has also been held that such construction rule may be invoked only where the law is ambiguous and there is
doubt as to its interpretation; where the law is clear and unambiguous, there is no room for the application of
the rule.
Nevertheless, the Supreme Court has equally held that the rule of strict construction of criminal law
is subordinate to the rule of reasonable, sensible construction, having in view the legislative purpose and
intent, and given effect to the same; the rule should not be unreasonably applied as to defeat the true intent
and meaning of the enactment found in the language actually used. Penal statutes shall not, by what may be

thought their spirit and equity, be extended to offenses other than those which are specifically and clearly
described and provided for since the law will not allow constructive offenses or arbitrary punishments. This
rule does not exclude the application of common sense to the terms used in the law.
The Elements of the Criminal Offense Under Sec. 144
Looking at the language of Sec. 144, one can see that it seems all-encompassive in nature as it
imposes criminal liability for "Violations of any of the provisions of this Code or its amendments not
otherwise specifically penalized therein." This is further bolstered by the fact that in addition, Sec. 144 does
not mean to cover other provisions of the Corporation Code which provides for specific penalties (as Sec. 74
on violation of the right of inspection as discussed hereunder) because is uses the phrase "not otherwise
specifically penalized therein."
It is difficult to construe Sec. 144 to mean all non-compliance with the provisions of the Corporation
Code would be criminally punishable. For example, under Sec. 26 of the Corporation Code, it is provided
that within thirty (30) days after the election of the directors, trustees and officers of the corporation, the
secretary, or any other officer of the corporation, shall submit to the SEC, the names, nationalities and
residences of the directors, trustees and officers elected. If a corporate secretary fails to comply with this
provision, would he then be subject to a criminal penalty under Sec. 144?
Such a construction would seem too harsh, and effectively discourage competent and well-meaning
individuals from accepting positions within the corporate setting. It would then make the corporation a very
unattractive medium for commerce.
The Meaning of "Violation" Under Sec. 144
The proper and reasonable interpretation of Sec. 144 is to determine what the term "violations"
covers.
"Violation" means "Injury; infringement; breach of right, duty or law;" the action of breaking a law,
rule, agreement, promise, or instruction.
Therefore, the "violations" covered by Sec. 144 covers only those provisions in the Corporation
Code which are expressly mandatory in nature to show the true intent of Congress to impose a penal
sanction for non-compliance therewith.
For example, Sec. 15 of the Corporation Code provides for the form to be followed in preparing and
filing the articles of incorporation of a corporation. Certainly, non- compliance therewith would not subject the
incorporators to penal sanction, although certainly that would be a "violation" of the provisions of the
Corporation Code in broad use of the term "violation". Especially so when the Code itself under Sec. 17
gives the SEC authority to reject the articles of incorporation or disapprove the same if it does not comply
with the Code. In fact that same section grants the incorporator a reasonable time "within which to correct or
modify the objectionable portions of the articles."
There are other provisions in the Corporation Code where it would seem clear that civil sanction for
damages is imposed rather than the criminal sanction under Sec. 144 thereof. Under Sec. 31 thereof, a
director or trustee who willfully and knowingly votes for or assents 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. Under Sec. 32, where a director, by virtue of his office, acquires for himself a business
opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such
corporation, he must account to the corporation for all such profits by refunding the same.
So also, under Sec. 65, any director or officer of a corporation consenting to the issuance of stocks
for a consideration less than its par or issued value or for a consideration in any form other than cash,
valued in excess of its fair value, or who, having knowledge thereof, does not forthwith express his objection
in writing and file the same with the corporate secretary, shall be solidarily liable with the stockholder

concerned to the corporation and its creditors for the difference between the fair value received at the time of
issuance of the stock and the par or issued value of the same.
In all the foregoing instances, it would not be proper to subject erring directors, trustees, or
corporate officers to criminal penalty under Sec. 144 since the specific provisions themselves provide for the
proper remedies in each case. This is the proper and reasonable interpretation of the phrase in Sec. 144
"not otherwise specifically penalized therein" to mean that even when the provisions seems to be mandatory
and the violation thereof is a serious breach, when the particular provision already provides for a specific
penalty the penal sanction under Sec. 144 should not be made to apply.
There is a specific provisions of the Corporation Code where the Legislature has made it clear or
apparent that it seeks to impose the penal sanctions under Sec. 144 for non-compliance therewith. Under
Sec. 74, any officer or agent of the corporation who shall refuse to allow any director, trustee, stockholder or
member of the corporation to examine or copy excerpts from its records and minutes, in accordance with the
provisions of this Code "shall be liable to such director, trustee, stockholder or member for damages, and in
addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code." Section
174 of the Corporation Code is therefore a clear example of the intent of Legislature that when it seeks to
impose the criminal sanction under Sec. 144 for violation of the provision of the Code, then it uses clear
words to indicate so.
At present, only Sec. 74 of the Corporation Code refers to Sec. 144, so that effectively only violation
of the right of inspection under Sec. 74 are criminally punishable under Sec. 144. In effect, the broad
coverage of Sec. 144 is meaningless since it is applicable only to Sec. 74 of the Code. If that is the legal
effect, then it could be argued that Legislature, when it enacted Sec. 144 of part of the Corporation Code,
had not intended it to be a practically useless provision since the penal sanctions provided therein could
have effectively been stated in Sec. 74 if it is indeed the only violation applicable to said provision. However,
such a position fails to consider that indeed Sec. 144 was meant to be the over-all penal sanction under the
Code, if and when Legislature deems it appropriate to impose a penal sanction for violation thereof not only
based on the current provisions of the Code, but also "its amendments" in the future.
It should also be noted that although a penal provision like Sec. 144 is usual in special laws,
nevertheless, the implementation dura lex, sed lex of such penal provisions under most special laws is
without controversy because the subject thereof is limited and the acts covered therein are clearly defined.
Such position cannot be equated to Sec. 144, since the Corporation Code, indeed is a "code" that necessary
covers a broad subject and almost innumerable acts.
Sec. 190-1/7: Historical Background to Sec. 144
As indicated at the end of Sec. 144, it is an amended version of Sec. 190-1/7 of the old Corporation
Law. A contrary view to the position taken in this paper does not take into consideration that the present
Sec. 144 of the Corporation Code, is a carry-over of Sec. 190-1/7 of the old Corporation Law. It should be
recalled that when the then Corporation Law sought to impose a criminal penalty on a prohibited act, it
spelled it our clearly, thus:
(a) Under then Sec. 15 of the Law, it punished as an offense by a fine of P20,000 employment of
persons in slavery in a corporation doing business in the Philippines or receiving any grant, franchise or
concession from the Philippine Government;
(b) Under Sec. 19 of the Law, any corporation which fails to report to the SEC any cessation or
change of address, if any, shall be subject to a fine of not less than P100 nor more than P1,000;
(c) Under then Sec. 69 of the Law, any officer, or agent of the corporation or any person transacting
business or any foreign corporation not having the license prescribed by law shall be punished by
imprisonment of not less than six (6) months nor more than two (2) years or by a fine of not less than P200
nor more than P1,000, or by both such imprisonment and fine, in the discretion of the court.

Subsequently, then Sec. 190-1/7 became the general sanction under the then Corporation Law for
violations of the above-enumerated offenses. Such offenses, considered to be archaic, have not been
carried over into the Corporation Code. Therefore, Sec. 144 should now be viewed not as a contemporary
enactment of Legislature as a "new" policy towards violation of the any and all provisions of the Corporation
Code, but really a relic or carry-over of the old Corporation Law provision which therefore should be
interpreted in the same manner as then Sec. 190-1/7 of the Law, which also carried the phrase "not
otherwise penalized therein."
As originally enacted, the old Corporation Law did not contain any appropriate clause directly
penalizing the act of a corporation, or member of a corporation for violation of certain prohibited acts under
that law. The Philippine Legislature undertook to remedy the situation in section 3 of Act No. 2792, approved
on 18 February 1919, providing for the original version of Sec. 190.
Government of the Philippine Islands v. El Hogar Filipino held that the section was not intended to
make every casual violation of one of the Corporation Law provisions ground for involuntary dissolution of
the corporation and that the court was entitled to exercise discretion in such matters. At the time of El Hogar,
the version of then Sec. 190 on the dissolution of corporate violator was expressed in mandatory terms,
thus:
"SEC. 190. (A). Penalties.--The violation of any of the provisions of this Act and its amendments not
otherwise penalized therein, shall be punished by a fine of nor more than one thousand pesos, or by
imprisonment for not more than one thousand pesos, or by imprisonment for not more than five years, or
both, in the discretion of the court. If the violation is committed by a corporation, the same shall, upon such
violation being proved, be dissolved quo warranto proceedings instituted by the Attorney-General or by any
provincial fiscal by order of said Attorney-General x x x."
The Court held that although the section uses the word "shall" the provision on dissolution should be
interpreted to mean "may". It held another way to put the same conclusion is to say that the expression
"shall be dissolved by quo warranto proceedings" means in effect, "may be dissolved by quo warranto
proceedings in the discretion of the court." The Court also held that "The proposition that the word `shall'
may be construed as `may', when addressed by the Legislature to the courts is well supported in
jurisprudence."
Nevertheless, El Hogar declared the section invalid for lack of adequate title to the Act.
Subsequently, the Philippine Legislature reenacted substantially the same penal provision in section 21 of
Act No. 3518, under a title sufficiently broad to comprehend the subject matter.
Harden v. Benguet Consolidated Mining Co. held that violation of the provisions of the old
Corporation Law prohibiting one mining corporation from acquiring interest in another was held not to permit
repudiation of the contract for such interest, though it might subject the corporation to quo warranto or
criminal proceedings. What is important is the ruling in Harden is the pronouncement of the Court that Sec.
190 "was adopted by the lawmakers with a sole view to the public policy that should control in the granting of
mining rights. Furthermore, the penalties imposed in what is now section 190(A) of the Corporation Law for
the violation of the prohibition in question are of such nature that they can be enforced only by a criminal
prosecution or by an action of quo warranto. But these proceedings can be maintained only by the AttorneyGeneral in representation of the Government."
The implication in Harden is that, as dissolution of a corporation is a matter addressed to the courts,
and can be commenced only by the State, through the Solicitor General, when enforcing a public policy, as
distinguished from answering a private wrong, so also criminal prosecutions under Sec. 144, as a derivative
from the old Sec. 190 of the Corporation Law, can be proceeded by the State only for violations of the
provisions of the Corporation Code that go into prohibitory provisions of the Code covering fundamental
public policy, and can only be commenced by the Solicitor General, in representation of the Government,
and not upon the complaint of any ordinary citizen.

Contrary View
It should be noted, however, that Guevarra, in his treatise on the old Corporation Law took the
contrary position that the Law "provides special penalties for violations of some provisions of the Corporation
Law and also a general penalty for violations not specifically penalized therein."
We must also take note of the obiter dictum expressed in Home Insurance Company v. Eastern
Shipping Lines. In that case, Home Insurance Company, a foreign corporation, which admittedly had
engaged in business in the Philippines, had issued insurance contracts in the Philippines without obtaining
the necessary license. Subsequently, it obtained the license before filing the cases for collection under the
insurance contracts. The lower court dismissed the complaint and declared that pursuant to its
understanding of the basic public policy reflected in the Corporation Law, the insurance contracts executed
before a license was secured must be held null and void, and the subsequent procurement of the license did
not validate the contracts.
The Supreme Court, although it recognized there were conflicting schools of thought both here and
abroad which are divided on whether such contracts are void or merely voidable, took its cue from the
doctrine laid down in Marshall Wells Co. v. Elser that the doctrine of then Sec. 69 of the old Corporation Law
"was to subject the foreign corporation doing business in the Philippines to the jurisdiction of our courts x x x
and not to prevent the foreign corporation from performing single acts, but to prevents it from acquiring
domicile for the purpose of business without taking the necessary steps to render it amenable to suit in the
local courts."
However, although the issue of criminal sanction was not at issue, Justice Gutierrez in Home
Insurance held that Sec. 133 of the present Corporation Code, which unlike its counterpart Sec. 69 of the
Corporation Law provided specifically for penal sanctions for foreign corporations engaging in business in
the Philippines without obtaining the requisite license, should be deemed to have a penal sanction by virtue
of Sec. 144 of the Corporation Code, thus:
"Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines has corrected the
ambiguity caused by the wording of Section 69 of the old Corporation Law. x x x.
"x x x.
"The old Section 69 has been reworded in terms of non-access to courts and administrative
agencies in order to maintain or intervene in any action or proceedings.
"The prohibition against doing business without first securing a license is now given penal sanction
which is also applicable to other violations of the Corporation Code under the general provisions of Section
144 of the Code.
"It is, therefore, not necessary to declare the contract null and void even as against the erring
foreign corporation. The penal sanction for the violation and the denial of access to our courts and
administrative bodies are sufficient from the viewpoint of legislative policy."
Home Insurance in dealing with the scope and reach of Sec. 144, has not only expressed an obiter
dictum, but more importantly has not looked into the implications of such broad pronouncements on the
basis of Criminal Law principles, since such principles have not been raised, discussed nor focused into
appropriately in the rendering of the decision. When the appropriate case is brought to the Supreme Court,
and the proper factual basis and principles of Criminal Law are discussed and detailed before the Court, we
believe that the Court will take a contrary position on ratio decidendi considerations. After all, it was in Home
Insurance where the Court itself expressed the position that "[t]he Corporation Law must be given a
reasonable, not an unduly harsh, interpretation which does not hamper the development of trade relations."
Otherwise, Sec. 144, hangs like a Democles sword ready to chop off the neck of corporate directors,
trustees, and officers.

Absence of Malice or Defense of Good Faith Under the Corporation Code


Even if one where to meet head-on the position that Sec. 144 was meant by Legislature to
encompass every violation of the provisions Corporation Code, it would be extremely difficult to obtain a
conviction under Sec. 144, except for the specific violation under Sec. 74 of the Code. Not only must the
guilt of the accused be proven beyond reasonable doubt, but more so, since violations of the Corporation
Code are not mala prohibita, but constitute mala in se, then the evil intent or malice of the accused is an
essential element for a crime punishable under Sec. 144. This is demonstrated by no less than Sec. 74
which provides good faith as a defense: "That it shall be a defense to any action under this section that the
person demanding to examine and copy excerpts from the corporation's records and minutes has improperly
used any information secured through any prior examination or the records or minutes of such corporation or
of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand."
In cases, therefore, of prosecutions under Sec. 144, the director, trustee or officer accused, could
have more than enough legal basis to claim good faith because of the varied interpretations and applications
of the principles of Corporate Law.
It should be recalled that Corporate Law is essentially a transplant of that specific body of law
coming from the common law jurisdiction of the various states of the United States. The Corporation Code
may have expressed in statutory form many of the common law principles of Corporate Law, however there
are various interpretations of similar provisions in various codes. In addition, there are various common law
principles in Corporate Law that are applicable in our jurisdiction that have not even found their way in the
Corporation Code, but which nevertheless are applied by our Supreme Court. A prime example of this are
the principles pertaining to derivative suits, which are all found in decisions of the Supreme Court which
have no direct statutory basis in the Corporation Code.
Our own Supreme Court every now and then relies on discussions of Fletcher to resolves issues in
Corporate Law. In addition, there are varying, and sometimes conflicting decisions on the same principle or
statutory provision in Corporate Law among the various courts in the United States. Finally, the often fast
development in our commercial transactions which have by practice allowed previously outlawed practices
to be accepted (such as rights of first refusal practice, classification of the board seats, etc.) have often been
recognized as reasonable and lawful bases to validly animate board decisions or actuations of corporate
officers.
There is therefore every leeway for the defense in a criminal suit based on Sec. 144 of the
Corporation Code, to show that the element of malice does not pertain to an act or a transaction upon which
the criminal imputation is based upon.
---oOo---

Published last February, 1996 in THE LAWYERS' REVIEW, Vol. X, Nos 2.


U.S. v. Taylor, 28 Phil. 599, 604 (1914).
U.S. v. Abad Santos, 36 Phil. 243 (1917); People v. Yu Hai, 99 Phil. 725 (1956); People v. Terrado,
125 SCRA 648 (1983).
People v. Gatchalian, 104 Phil. 664 (1958).
People v. Padilla and Von Arend, 71 Phil. 261 (1941).
People v. Abuyen, 52 Phil. 722, 726 (1929).
Ibid.
Black's Law Dictionary, 5th Ed.
World Book Dictionary, 1983 Ed., Doubleday & Company, Inc. Chicago Illinois.

Salonga, PHILIPPINE LAW ON PRIVATE CORPORATIONS, p. 629 (1968 Ed.).


Act No. 1459.
50 Phil. 399 (1927).
Ibid, at p. 414, citing Becker v. Lebanon and M. St. Ry. Co., 188 Pa., 484.
58 Phil. 141 (1933).
Ibid, at p. 149; emphasis supplied.
Guevarra, CORPORATION LAW (Phil. Jur. Series I), 1978 Ed., U.P. Law Center.
Ibid, at p. 250.
123 SCRA 424 (1988).
46 Phil. 70 (1924).
Ibid, at pp. 438-439; emphasis supplied.
Ibid, at p. 435.