After reading “What is the Special Fact Doctrine?”, read also “What Are Types Of Managerial Employees?”
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A corporate officer with a superior knowledge gained by virtue of being an insider owes a fiduciary duty to a shareholder in transactions involving transfer of stocks.
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It is unlawful for an insider to sell or buy a security of the issuer, while in possession of a material information with respect to the issuer, or the security that is not generally available to the public.
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Absent a fiduciary relationship between parties, there is nonetheless a duty to disclose when one party’s superior knowledge of essential facts renders the transaction without disclosure inherently unfair.
The Special Fact Doctrine holds that a corporate officer with superior knowledge gained by virtue of being an insider owes a fiduciary duty to a shareholder in transactions involving transfer of stocks.
(“Special facts doctrine.” Merriam-Webster.com Legal Dictionary, Merriam-Webster, https://www.merriam-webster.com/legal/special%20facts%20doctrine. Accessed 13 Mar. 2022.)
The law says:
Who is an insider?
R.A. 8799 or the Securities Regulations Code defines an insider in the following manner:
“Insider” means (a) the issuer; (b) a director or officer (or any person performing similar functions) of, or a person controlling the issuer; gives or gave him access to material information about the issuer or the security that is not generally available to the public; (d) A government employee, director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or (e) a person who learns such information by a communication from any forgoing insiders. (Chapter I, Section 3.8 of the R.A. 8799)
The Securities Regulation Code states the duty of an insider to disclose when trading:
“Section 27. Insider’s Duty to Disclose When Trading. “It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of a material information with respect to the issuer, or the security that is not generally available to the public, unless:
- the insider proves that the information was not gained from such relationship; or
- if the other party selling to or buying from the insider (or his agent) is identified, the insider proves:
- that he disclosed the information to the other party, or
- that he had reason to believe that the other party otherwise is also in possession of the information.
A purchase or sale of a security of the issuer made by an insider defined in Subsection 3.8, or such insider’s spouse or relatives by affinity or consanguinity within the second degree, legitimate or common-law, shall be presumed to have been effected while in possession of material nonpublic information if transacted after such information came into existence but prior to dissemination of such information to the public and the lapse of a reasonable time for market to absorb such information: Provided, however, That this presumption shall be rebutted upon a showing by the purchaser or seller that he was aware of the material nonpublic information at the time of the purchase or sale.”
When is the Special Fact Doctrine applicable?
The Special Fact Doctrine is applicable when:
- the material fact or information was peculiarly within the knowledge of one party, and
- the information was not such that could have been discovered by the other party through the exercise of ordinary intelligence.
What does “material fact or information” mean?
Material fact or information means any fact or information that may result in a change in the market price or value of any of the Issuer’s securities or may potentially affect the investment decision of the investor. (Rule 3.1.12, 2015 Implementing Rules and Regulations of the Securities Regulations Code)
Can the president and corporate secretary of a corporation be held liable for damages in case they deliberately withheld certain information from the buyer and disclosed adverse contract information known to them in a sale of some shares of the said corporation?
Yes, the president and corporate secretary can be held liable following the Special Fact Doctrine. Under the Special Fact Doctrine, absent a fiduciary relationship between parties, there is nonetheless a duty to disclose when one party’s superior knowledge of essential facts renders the transaction without disclosure inherently unfair.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding illegal dismissal, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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