Chapter 13 - Business Torts

Art. 2200: Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain INTRODUCTION A. The provision contemplates liability for various interference with business interests. B. The interference discussed in chapter include (1) interference with contractual relations; (2) interference with prospective advantage; (3) unfair competition; and (4) securities related fraud. A. STATUTORY PROVISION AND RATIONALE I. INTERFERENCE WITH CONTRACT Art. 1311 Contracts take effect only between the parties , their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person , he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person Art. 1313 Creditors are protected in cases of contracts intended to defraud them Art. 1314 Any third person who induces another to violate his contract shall be liable for damages to the other contracting party GENERAL RULE Only the parties to a contract are bound by the terms of the contract and only a party can file an action for breach or for rescission or annulment thereof. EXCEPTION: Assignees and Heirs (Art. 1311); Contract contains a stipulation in favor of a third party (Art. 1311); Contracts intended to defraud creditors (Art. 1313) It follows that a third person, who is not a party to the contract, cannot be sued by the contracting parties for breach since only parties can breach contractual provisions. An exception to this, was provided by Art. 1314, which is INTERFERENCE WITH CONTRACTUAL RELATIONS.

Such interference is considered tortious because it violates the rights of the contracting parties to fulfill the contract and to have it fulfilled, to reap the profits resulting therefrom, and to compel the performance by the other party. THEORY: Rights derived from a contract is a property right that entitles each party to protection against all the world and any damage to said property should be compensated. SO PING BUN VS. CA FACTS: Tek Hua Trading (Trading) entered into agreements with Dee C. Chua & Sons Inc. (DCCSI) for the lease of several premises which Trading used to store its textiles. The successor of Trading, Tek Hua Enterprising (Enterprising), allowed So Ping Bun, the grandson of the managing partner of Trading, to use the premises to store his own textiles. Later, Manuel Tiong, one of the members of Enterprising, asked So Ping Bun via a letter to vacate the premises within 14 days since he needed it for his textile business. So Ping Bun refused to vacate. Instead, So Ping Bun entered into lease contracts with DCCSI over the same premises. Enterprising and Manuel Tiong filed an action to nullify the contracts between So Ping Bun and DCCSI and also claimed damages against So Ping Bun for unlawful interference in the lease contracts between DCCSI and Enterprising. ISSUE: WON there was unlawful interference? HELD: Yes. The elements of tort interference are: a) existence of a valid contract; knowledge on the part of the third person of the existence of the contract; and interference of the third person is without legal justification or excuse. b) c)

In this case, Trendsetter Marketing (So Ping Bun's company) asked DCCSI to execute lease contracts in its favor, and as a result, it was able to deprive Enterprising of its property rights. The three elements of tort interference are present since So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at the expense of Enterprising. The business desire is there to make some gain to the detriment of the contracting parties. Lack of malice, however, precludes damages. But it does not relieve So Ping Bun of the legal liability for entering into contracts and causing breach of existing ones. Thus, the appellate court correctly confirmed the permanent injunction and nullification of the contracts between DCCSI and Trendsetter, without awarding damages. ELEMENTS Existence of a valid contract; Knowledge on the part of the third person of the existence of the contract (MALICE); Interference of the third person without legal justification or excuse (PROCUREMENT). CONTRACT No tort is committed if the party had already broken the contract and offers to contract with defendant. No action can be maintained if the contract is void or where the contract is illegal or one that is contrary to public policy. Art. 2014: No action can be maintained by the winner for the collection of what he has won in a game of chance . But any loser in a game of chance may recover his loss

from the winner, with legal interest from the time he paid the amount lost, and subsidiarily from the operator or manager of the gambling house It follows that a third person, who induced another not to comply with his undertaking to pay the winner, cannot be sued by such winner. According to Harper, an action for interference can be maintained even if the contract is unenforceable. The unenforceability of the contract is for the protection of the obligor and is personal to him and not available to strangers. MALICE It is enough if the wrongdoer, having knowledge of the existence of the contract relation, in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his spite by working mischief to the other is immaterial. MALICE in the sense of ill-will or spite is not essential. GILCHRIST VS. CUDDY FACTS: Gilchrist, a proprietor of the Eagle Theater of IloIlo, contracted with Cuddy for a film, to be exhibited in his theatre. Later, defendants Espejo and Zaldarriaga, who were also operating a theatre in IloIlo, also obtained from Cuddy a contract for the exhibition of the same film. Plaintiff Gilchrist commenced an action applying for a preliminary injunction against the defendants prohibiting them from receiving, exhibiting or using said film which was granted by the RTC. The defendants (herein appellants) contend that they had a right to compete with Gilchrist for the lease of the film ISSUE: WON the right to compete absolves defendants of their liability for interfering in the contract between Gilchrist and Cuddy? HELD: No. The right on the part of Gilchrist to enter into a contract with Cuddy for the lease of the film must be fully recognized and admitted by all. If there had been no contract between Cuddy and Gilchrist, the defense interposed would be tenable, but the mere right to compete could not justify the appellants is intentionally inducing Cuddy to take away the plaintiffs (herein appellee) contractual rights. Chief Justice Wells in Walker vs. Cronin said: Everyone has a right to enjoy the fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be protected against competition; but he has a right to be free from malicious and wanton interference, disturbance and annoyance. If disturbance and annoyance comes as a result of competition, or the exercise of like rights of others, it is damnum absque injuria, unless some superior right by contract or otherwise is interfered with. Justice Darling in Read vs. Friendly Society of Operative Stonemasons said: it is not sufficient justification that they acted bona fide in the best interests of society of masons, i.e., in their own interests. Nor is it enough that they were not actuated by improper motives. [It is] sufficient justification for interference with plaintiffs right must be an equal or superior right in themselves, and that no one can legally excise himself to a man, of whose contract he procured the breach, on the ground that he acted on a wrong understanding of his own rights, or without malice, or bona fide, or in the best interest of himself, or even that he acted as an altruist, seeking only the good of another and careless of his own advantage.

In the case at bar, even if there was no malice beyond the desire to make a profit by exhibiting the film in their theatre, the defendants are not relieved from their legal liability for interfering with the contract and causing its breach . PROCUREMENT It should be observed that according to English and American authorities, no question can be made as to the liability of one who interferes with a contract through unlawful means. Thus, if performance is perverted by force, intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance or riot, the person using such unlawful means is, under all authorities, liable for damage which ensues. A person who detains a professional singer to prevent him from pursuing his contractual commitment to perform at a certain gathering is therefore not only criminally liable but is civilly liable as well under Art. 1314. DAYWALT VS. LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS FACTS: Teodorica Endencia and herein petitioner entered into a contract of sale where the former became hesitant to sell his lot upon knowing that the total land area of the lot covered by the Torrens title was bigger than what was originally expected. In a decision by this court, petitioner was held to be entitled to the whole area upon payment of the whole price. In this case against the respondent corporation, petitioner seeks recovery of damages on the ground that said corporation, while using the property sold to petitioner also, for its own selfish purposes, unlawfully induced Teodorica Endencia to refrain from the performance of her contract for the sale of the land in question and to withhold delivery to the plaintiff of the Torrens title, and further, maliciously and without reasonable cause, maintained her in her defense to the action of specific performance which was finally decided in favour of the petitioner as earlier mentioned which ultimately resulted to the petitioners failure to convey the land to a sugar milling company which would have reaped profits, the amount of which is claimed as damages. ISSUE: WON ill-will or spite on the part of the respondent corporation is necessary to be liable for interference? HELD: No. Respondent Corporation believed in good faith that the contract could not be enforced and that Teodorica would be wronged if it should be carried into effect. Any advice or assistance which they may have given was, therefore, prompted by o mean or improper motive. Although malice in some form is generally supposed to be an essential ingredient in cases of interference with contract relations, but upon the authorities it is enough if the wrong-doer, having knowledge of the existence of the contract relations, in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his spite by working mischief to the employer is immaterial. Malice in the sense of ill-will or spite is not essential. LEGAL JUSTIFICATION In general, social policy permits a privilege or justification to intentionally invade the legally protected interests of others only if the defendant acts to promote the interests of others or himself if the interest which he seeks to advance is superior to the interest invaded in social importance. LEGAL JUSTIFICATION If a party enters into contract to go for another upon a journey to a remote and unhealthful climate, and a third person, with a bona fide purpose of benefiting the one who is under

contract to go, dissuades him from the step, no action will lie. But if the advice is not disinterested and the persuasion is used for indirect purpose of benefiting the defendant at the expense of the plaintiff, the intermedler is liable if his advice is take and the contract broken (Daywalt vs. La Corporacion, supra) The damages recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary, natural, and in a sense necessary damage; and (2) special damages Ordinary damages is found in all breaches of contract where the are no special circumstances to distinguish the case specially from other contracts. In all such cases the damages recoverable are such as naturally and generally would result from such a breach, "according to the usual course of things." Ordinary damage is assumed as a matter of law to be within the contemplation of the parties Special damage, on the other hand, is such as follows less directly from the breach than ordinary damage. It is only found in case where some external condition, apart from the actual terms to the contract exists or intervenes, as it were, to give a turn to affairs and to increase damage in a way that the promisor, without actual notice of that external condition, could not reasonably be expected to foresee . Concerning this sort of damage, Hadley vs. Baxendale (1854) [supra] lays down the definite and just rule that before such damage can be recovered the plaintiff must show that the particular condition which made the damage a possible and likely consequence of the breach was known to the defendant at the time the contract was made. EXTENT OF LIABILITY Where the damage which a plaintiff seeks to recover as special damage is so far speculative as to be in contemplation of law remote, notification of the special conditions which make that damage possible cannot render the defendant liable therefor The stranger cannot become more extensively liable in damages for the non-performance of the contract than the party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could be recovered against the immediate party to the contract would lead to results at once grotesque and unjust. In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is obvious that the liability of the defendant corporation, even admitting that it has made itself co-participant in the breach of the contract, can in no case exceed hers (Daywalt, supra) Aquino, however, proposes that the rule that should apply is that provided under Art. 2202 which provides that In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of. It is not necessary that such damages have been foreseen or could have reasonably been foreseen by the defendant , even if the result is that the person who breached the contract will be liable for less because of his good faith. II. INTERFERENCE WITH PROSPECTIVE ADVANTAGE If there is no contract yet and the defendant is only being sued for inducing another not to enter into a contract with the plaintiff, the tort committed is appropriately called INTEREFERENCE WITH PROSPECTIVE ADVANTAGE. EXAMPLE If the defendant, with ill will, induced an employer not to hire Mr. A, the latter may hold the defendant liable for interfering with a prospective advantage 3. UNFAIR COMPETITION

Art. 28, Civil Code Unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage. Sec. 19, Article XII 1987 Constitution The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. Art. 186 Revised Penal Code 1. Any person who, in unfair competition and for the purpose of deceiving or defrauding another of his legitimate trade or the public in general, shall sell his goods giving them the general appearance of goods of another manufacturer or dealer, either as to the goods themselves, or in the wrapping of the packages in which they are contained, or the device or words thereon, or in any other feature of their appearance which would be likely to induce the public to believe that the goods offered are those of a manufacturer or dealer other than the actual manufacturer or dealer, or shall give other persons a chance or opportunity to do the same with a like purpose. 2. Any person who shall affix, apply, annex, or use in connection with any goods or services or any container or containers for goods, a false designation of origin, or any false description or representation, and shall sell such goods or services. 3. Any person who, by means of false or fraudulent representation or declarations, orally or in writing, or by other fraudulent means shall procure from the patent office or from any other office which may hereafter be established by law for the purposes, the registration of a tradename, trademark or service mark or of himself as the owner of such tradename, trademark or service mark or an entry respecting a tradename, trademark or service mark. (As amended by Republic Act No. 172, approved June 20, 1947.)] A. PASSING OFF AND DISPARAGEMENT OF PRODUCTS Sec. 168, Intellectual Property Code (RA 8293) Section 168. Unfair Competition, Rights, Regulation and Remedies. - 168.1. A person who has identified in the mind of the public the goods he manufactures or deals in, his business or services from those of others, whether or not a registered mark is employed, has a property right in the goodwill of the said goods, business or services so identified, which will be protected in the same manner as other property rights. 168.2. Any person who shall employ deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals, or his business, or services for those of the one having established such goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be subject to an action therefor. 168.3. In particular, and without in any way limiting the scope of protection against unfair competition, the following shall be deemed guilty of unfair competition: (a) Any person, who is selling his goods and gives them the general appearance of goods of another manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices or words thereon, or in any other feature of their appearance, which would be likely to influence purchasers to

believe that the goods offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or who otherwise clothes the goods with such appearance as shall deceive the public and defraud another of his legitimate trade, or any subsequent vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose; (b) Any person who by any artifice, or device, or who employs any other means calculated to induce the false belief that such person is offering the services of another who has identified such services in the mind of the public; or (c) Any person who shall make any false statement in the course of trade or who shall commit any other act contrary to good faith of a nature calculated to discredit the goods, business or services of another. B. INTERFERENCE C. MISAPPROPRIATION The Court explained that news of current events are not copyrightable and may be regarded as common property. HOWEVER, competitors are under the duty to conduct its own business so as not to unnecessarily or unfairly injure that of the other. D. MONOPOLIES AND PREDATORY PRICING Defendants can be held liable for unfair competition if they were involved in predatory pricing i.e. A practice of selling below costs in the short run in the hope of obtaining monopoly gains later, after driving the competition out of the market (Mogul Steamship Co vs McGregor, Gow & Co., 23 QBD 598) A monopoly embraces any combination the tendency of which is to prevent the competition in the broad and general sense or to control the prices to the detriment of the public. In short, it is the concentration of business in the hands of a few. The material consideration in determining its existence is not that prices are raised and competition actually excluded but that power exists to raise prices or exclude competition when desired. (Gokongwei vs the SEC GR No. L-45911, April 11, 1979) SHELL COMPANY OF THE PHILIPPINES, LTD. vs. INSULAR PETROLEUM REFINING CO., LTD. Facts: Petitioner sells petroleum products , including lubricating oil. The packages and containers of its goods bear its trademark labeled or stenciled thereon. Defendant on the other hand collects used lubricating oil refined and marketed to the public at a much lower price than new lubricating oil. From the used oil defendant produces two types of oil- one, first grade oil which is marketed using high-grade oil containers bearing the defendant's trademark and the other, the second grade oil marketed using miscellaneous containers or used containers some of which were Shell containers. Before filing the empty drums the Defendant obliterates the markings of the used drums. In one transaction however, the defendant's low grade oil that was sold to the operator was contained in a drum still containing the petitioner's brand or mark 'Shell' thus this action for damages against the defendant on the allegation of unfair competition i.e. its selling lowgrade oil in Shell containers intending to mislead the the public to the prejudiceof petitioner and attempting to persuade shell dealers to purchase its lowgrade oil which resulted to petitioner's sales. In its defense, the defendant denied that it has attempted to pass off products as that of another or to pesuade anyone to do the same.

Issue: WON defendant was guilty of unfair competition? SHELL COMPANY OF THE PHILIPPINES, LTD. vs. INSULAR PETROLEUM REFINING CO., LTD. As no inflexible rule can be laid down as to what will constitute unfair competition; as each case is , in a measure, a law unto itself and as unfair competition is always a question of fact , the determination of whether unfair competition was committed in the case at bar, must have to depend upon the facts found by the Court of Appeals, to the definitiveness to which we are bound.... Not just because a manufacturer used a container still bearing a competitors markings in the sale of ones products, irrespective to whom how the sale is made, can there be a conclusion that the buying public has been misled or will be misled, and therefore unfair competition is born. The single transaction at bar will not render defendants act an unfair competition, much in the same way that the appearance of ones swallow does not make a season summer. SECURITY RELATED TORTS Art. 20. Every person who, contrary to law, willfully or negligently, causes damage to another, shall indemnify the latter for the same. Republic Act 8799 The Securities Regulation Code Section 2. Declaration of State Policy. The State shall establish a socially conscious, free market that regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratization of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. To achieve these ends, this Securities Regulation Code is hereby enacted. Section 73. Penalties. Any person who violates any of the provisions of this Code, or the rules and regulations promulgated by the Commission under authority thereof, or any person who, in a registration statement filed under this Code, makes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall, upon conviction, suffer a fine of not less than Fifty thousand pesos (P50,000.00) nor more than Five million pesos (P5,000,000.00) or imprisonment of not less than seven (7) years nor more than twenty-one (21) years, or both in the discretion of the court. If the offender is a corporation, partnership or association or other juridical entity, the penalty may in the discretion of the court be imposed upon such juridical entity and upon the officer or officers of the corporation, partnership, association or entity responsible for the violation, and if such officer is an alien, he shall in addition to the penalties prescribed, be deported without further proceedings after service of sentence. Section 3. Definition of Terms. - 3.1. "Securities" are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether written or electronic in character. It includes: (a) Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed securities;

(b) Investment contracts, certificates of interest or participation in a profit sharing agreement, certifies of deposit for a future subscription; (c) Fractional undivided interests in oil, gas or other mineral rights; (d) Derivatives like option and warrants; (e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments (f) Proprietary or nonproprietary membership certificates in corporations; and (g) Other instruments as may in the future be determined by the Commission. This Code shall be administered by the Securities and Exchange Commission A. FRAUD Section 26. Fraudulent Transactions. It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to: 26.1. Employ any device, scheme, or artifice to defraud; 26.2. Obtain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or 26.3. Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person. Section 58. Civil Liability of Fraud in Connection with Securities Transactions . Any person who engages in any act or transaction in violation of Sections 19.2, 20 or 26, or any rule or regulation of the Commission thereunder, shall be liable to any other person who purchases or sells any security, grants or refuses to grant any proxy, consent or authorization, or accepts or declines an invitation for tender of a security, as the case may be, for the damages sustained by such other person as a result of such act or transaction. B. MISSTATEMENTS Section 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser. 8.2. The Commission may conditionally approve the registration statement under such terms as it may deem necessary. 8.3. The Commission may specify the terms and conditions under which any written communication, including any summary prospectus, shall be deemed not to constitute an offer for sale under this Section. 8.4. A record of the registration of securities shall be kept in Register Securities in which shall be recorded orders entered by the Commission with respect such securities. Such register and all documents or information with the respect to the securities registered therein shall be open to public inspection at reasonable hours on business days.

Section 12. Procedure of Registration Securities. - 12.1. All securities required to be registered under Subsection 8. I shall be registered through the filing by the issuer in the main office of the Commission, of a sworn registration statement with the respect to such securities, in such form and containing such information and document as the Commission prescribe. The registration statement shall include any prospectus required or permitted to be delivered under Subsections 8.2, 8.3, and 8.4. CIVIL LIABILITIES False Registration Statement. THE PLAINTIFF AND THE DEFENDANTS Section 56. Civil Liabilities on Account of False Registration Statement. 56.1. Any person acquiring a security, the registration statement of which or any part thereof contains on its effectivity an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make such statements not misleading, and who suffers damage, may sue and recover damages from the following enumerated persons, unless it is proved that at the time of such acquisition he knew of such untrue statement or omission: (a) The issuer and every person who signed the registration statement: (b) Every person who was a director of, or any other person performing similar functions, or a partner in, the issuer at the time of the filing of the registration statement or any part, supplement or amendment thereof with respect to which his liability is asserted; (c) Every person who is named in the registration statement as being or about to become a director of, or a person performing similar functions, or a partner in, the issuer and whose written consent thereto is filed with the registration statement; (d) Every auditor or auditing firm named as having certified any financial statements used in connection with the registration statement or prospectus. (e) Every person who, with his written consent, which shall be filed with the registration statement, has been named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement, report, or valuation, which purports to have been prepared or certified by him. (f) Every selling shareholder who contributed to and certified as to the accuracy of a portion of the registration statement, with respect to that portion of the registration statement which purports to have been contributed by him. (g) Every underwriter with respect to such security. 56.2. If the person who acquired the security did so after the issuer has made generally available to its security holders an income statement covering a period of at least twelve (12) months beginning from the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such income statement , but such reliance may be established without proof of the reading of the registration statement by such person. Section 59. Civil Liability for Manipulation of Security Prices . Any person who willfully participates in any act or transaction in violation of Section 24 shall be liable to any person

who shall purchase or sell any security at a price which was affected by such act or transaction, and the person so injured may sue to recover the damages sustained as a result of such act or transaction. Section 60. Civil Liability with Respect to Commodity Futures Contracts and Pre-need Plans. 60.1. Any person who engages in any act or transactions in willful violation of any rule or regulation promulgated by the Commission under Section 11 or 16, which the Commission denominates at the time of issuance as intended to prohibit fraud in the offer and sale of pre-need plans or to prohibit fraud, manipulation, fictitious transactions, undue speculation, or other unfair or abusive practices with respect to commodity future contracts, shall be liable to any other person sustaining damages as a result of such act or transaction. 60.2. As to each such rule or regulation so denominated, the Commission by rule shall prescribe the elements of proof required for recovery and any limitations on the amount of damages that may be imposed. Section 61. Civil Liability on Account of Insider Trading . 61.1. Any insider who violates Subsection 27.1 and any person in the case of a tender offer who violates Subsection 27.4 (a)(I), or any rule or regulation thereunder, by purchasing or selling a security while in possession of material information not generally available to the public, shall be liable in a suit brought by any investor who, contemporaneously with the purchase or sale of securities that is the subject of the violation, purchased or sold securities of the same class unless such insider, or such person in the case of a tender offer, proves that such investor knew the information or would have purchased or sold at the same price regardless of disclosure of the information to him. 61.2. An insider who violates Subsection 27.3 or any person in the case of a tender offer who violates Subsection 27.4 (a), or any rule or regulation thereunder, by communicating material nonpublic information, shall be jointly and severally liable under Subsection 61.1 with, and to the same extent as, the insider, or person in the case of a tender offer, to whom the communication was directed and who is liable under Subsection 61.1 by reason of his purchase or sale of a security. (3) DEFENSES The defendants are free from liability if they can prove that at the time of acquisition, the plaintiff knew of the untrue statement or omission. (4) DAMAGES 4.1 Nature and Extent. The suit authorized under Sections 56 to 61, may be filed before the Regional Trial Court. The said court may award damages in the amount not exceeding triple the amount of the transactions plus actual damages. Exemplary damages may also be awarded. Courts are authorized to award attorneys fees not exceeding 30% of the award. 4.2 Joint and Several Liability If two or more persons are held liable as defendants, they shall be jointly and severally liable for the payment of damages. However, any person who becomes liable for the payment of such damages may recover contribution from any other person who, if sued separately,

would have been liable to make the same payment, unless the former was guilty of fraudulent representation and the latter was not. All persons held liable shall contribute equally to the total liability adjudged. In no case shall the principal, stockholders, directors and other officers of the issuer or persons occupying similar position, recover their contribution to the liability from the issuers. However, issuer may recover amount contributed to the liability. b. Prospectus and the like Section 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports. 57.1. Any person who: (a) Offers to sell or sells a security in violation of Chapter III, or (b) Offers to sell or sells a security, whether or not exempted by the provisions of this Code, by the use of any means or instruments of transportation or communication, by means of a prospectus or other written or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission),

and who shall fail in the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security. 57.2. Any person who shall make or cause to be made any statement in any report, or document filed pursuant to this Code or any rule or regulation thereunder, which statement as at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person who, not knowing that such statement was false or misleading, and relying upon such statement shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading. c. Statute of Limitations Section 62. Limitation of Actions. 62.1. No action shall be maintained to enforce any liability created under Section 56 or 57 of this Code unless brought within two (2) years after the discovery of the untrue statement or the omission, or, if the action is to enforce a liability created under Subsection 57.1 (a), unless, brought within two (2) yeas after the violation upon which it is based. In no event shall an such action be brought to enforce a liability created under Section 56 or Subsection 57.1 (a) more than five (5) years after the security was bona fide offered to the public, or under Subsection 57.1 (b0 more than five (5) years after the sale. 62.2. No action shall be maintained to enforce any liability created under any other provision of this Code unless brought within two (20 years after the discovery of the facts constituting the cause of action and within five (5) years after such cause of action accrued.