SC sets guidelines for application of Doctrine of Corporate Opportunity

The Supreme Court on Wednesday set the guidelines for the application of the Doctrine of Corporate Opportunity as it granted the petition filed by a company against its director for supposedly violating his duties.

In a 32-page decision, the High Court granted the petition for review on certiorari filed by the Total Office Products and Services (TOPROS), seeking a reversal of the ruling of the Court of Appeals.

The CA set aside the finding of a Regional Trial Court that TOPROS director and top officer John Charles Chang Jr. violated his fiduciary duties under the Corporation Code.

“Wherefore, the petition is granted. The decision… and resolution of the Court of Appeals… are set aside. Civil Case No. 68327 is remanded to Branch 158, Regional Trial Court, Pasig City for a resolution to the case,” it said.

According to the Court, Chang was appointed by TOPROS owners Ramon and Yaona Ang Ty in 1982 to manage TOPROS as the sole distributor of the Minolta plain paper copiers in the Philippines.

In 1998, the owners found that Chang, while still the corporate director, incorporated several companies to siphon the assets, funds, goodwill, equipment, and resources of TOPROS.

TOPROS said Chang used its properties in organizing the respondent corporations and obtained opportunities properly belonging to it and its stockholders to their damage and prejudice.

This prompted TOPROS to file a case for damages against Chang, TOPGOLD Philippines Inc., Golden Exim Trading and Commercial Corporation, and Identic International Corp.

In 2008, the RTC found that Chang violated his fiduciary duties and was guilty of disloyalty to TOPROS for which he must be held accountable under the Corporation Code.

The RTC also ordered the respondents to account for all the profits and properties which otherwise should have accrued to TOPROS and refund the same to TOPROS; pay P100,000 in exemplary; pay P100,000 as and by way of attorney’s fees to TOPROS, and pay the costs of the suit.

Meanwhile, the CA in 2011 assailed the decision, saying records do not show that TOPROS even attempted to adduce evidence that Chang and other respondents have complete control over TOPGOLD, Golden Exim, and Identic.

Doctrine of Corporate Opportunity

According to the Supreme Court, the doctrine of corporate opportunity arises out of the fundamental obligation of a fiduciary not to allow a conflict of their duty with their own interests.

“The doctrine… governs the legal responsibility of directors, officers, and controlling shareholders in a corporation under the duty of loyalty not to take such opportunities for themselves, without first disclosing the opportunity to the board of directors… and giving the board the opportunity to decline,” it said.

“If the procedure is violated and a corporate fiduciary takes the corporate opportunity anyway, the fiduciary violates its duty of loyalty and the corporation will be entitled to a constructive trust of all profits obtained,” it added.

The Court said a claim of damages under the Corporation Code arises when a corporate officer or director takes a business opportunity for his own and the claimant proves the following:

• The corporation is financially able to exploit the opportunity
• The opportunity is within the corporation’s line of business
• The corporation has an interest or expectancy in the opportunity

By taking the opportunity for his own, the corporate fiduciary… will be placed in a position inimicable to his duties to the corporation.

According to the Court, in determining whether the corporation is within the line of business, the involved corporations must be shown to be in competition with one another and engage in related areas of business, producing the same products with overlapping markets.

The High Court said that to determine the liability of Chang, TOPROS bears the burden of proving the specific business opportunities that gave rise to its claim of damages.

In turn, it said Chang may present evidence to support his claim that the corporation was heavily in debt and that TOPROS patriarch, Ramon Ty, was no longer interested in corporate rehabilitation, and that the corporation had already closed down.

The Court said it should also be made clear that the claim for damages necessitates factual determinations.

“In closing, it is well to recall that the doctrine of corporate opportunity is not based on theoretical abstractions, but on human experience that a person cannot serve two hostile masters without detriment to one of them,” it said.

“Where two corporations are competitive in a substantial sense, it would seem improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his loyalty to both corporations and place the performance of his corporation duties above his personal concerns,” it later added.—LDF, GMA News