G.R. Nos. 200070-71

G.R. No. 200070-71, December 7, 2021,
♦ Decision, Inting, [J]
♦ Concurring Opinion, Perlas-Bernabe, [J]
♦ Separate Concurring Opinion, Leonen, [J]
♦ Concurring Opinion, Caguioa, [J]
♦ Concurring Opinion, Lazaro-Javier, [J]

TOTAL OFFICE PRODUCTS AND SERVICES (TOPROS), INC., PETITIONER, VS. JOHN CHARLES CHANG, JR., TOPGOLD PHILIPPINES, INC., GOLDEN EXIM TRADING AND COMMERCIAL CORPORATION, AND IDENTIC INTERNATIONAL CORP., REPRESENTED BY JOHN CHARLES CHANG, JR., HECTOR AND CECILIA KATIGBAK, RESPONDENTS.

A person cannot serve two masters without detriment to one of them.1 It is from this basic human frailty that the "doctrine of corporate opportunity" was recognized and laws were put in place to deter corporate officers from using their position of trust and confidence to further private interests.

Before the Court is a Petition for Review on Certiorari2 praying for the reversal of the Decision3 dated June 17, 2011 and the Resolution4 dated January 2, 2012 of the Court of Appeals (CA) in CA-G.R. SP Nos. 103047 and 103119. The CA reversed and set aside the Decision5 dated March 18, 2008 of Branch 158, Regional Trial Court (RTC), Pasig City in Civil Case No. 68327, and denied the Motion for Reconsideration6 filed by Total Office Products and Services, Inc. (TOPROS), respectively.

On November 17, 1998, TOPROS filed before the Securities and Exchange Commission (SEC) a Petition for Injunction, Mandatory Injunction and Damages (With Urgent Motion for Issuance of Writ of Preliminary Attachment),7 which was later refiled as an Amended Petition for Accounting and Damages with Prayer for the Issuance of a Writ of Preliminary Attachment8 (Amended Petition) against TOPGOLD Philippines, Inc. (TOPGOLD), Golden Exim Trading and Commercial Corporation (Golden Exim), Identic International Corp. (Identic) (collectively, respondent-corporations), John Charles Chang, Jr. (Chang), Saul Mari Chang, Hector Katigbak (Hector), Cecilia Katigbak (Cecilia), Rosario Sarah Fernando, and Elizabeth Jay (Elizabeth) (collectively, individual respondents), who are all incorporators of the respondent-corporations.9

With the passage of Republic Act No. (RA) 8799 or the Securities Regulation Code, which took effect on August 8, 2000, the Amended Petition was transferred from the SEC to the RTC.10

According to the Amended Petition, Spouses Ramon (Ramon) and Yaona Ang Ty (Yaona) (collectively, Spouses Ty) wanted to establish a corporation during the latter part of 1982 that would be the sole distributor of Minolta plain paper copiers in the Philippines. Chang, a former employee of Pantrade, Inc., (Pantrade), a company also owned by the Ty Family, was given the duty to manage the new corporation. The Ty Family gave Chang 10% shares in the corporation with the assurance from Chang that he will render competent, exclusive, and loyal service thereto. On January 31, 1983, TOPROS was incorporated with an authorized capital stock of P4,000,000.00. Among the incorporators, Chang was the only one who is not a member of the Ty Family.11

The Ty Family elected Chang as President and General Manager and entrusted to him the management as well as the funds of TOPROS. Meanwhile Yaona served as Treasurer and Jennifer Ty (Jennifer) stood as Corporate Secretary. Upon Chang's request, Elizabeth, Hector, and Cecilia, all employees of Pantrade, were transferred to TOPROS.12

TOPROS grew into a multi-million enterprise; thus, Spouses Ty increased its authorized capital stock to P10,000,000.00 and Chang's share to 20%. TOFROS included in its line of business the distribution of various office equipment and supplies utilizing the brand names Ultimax, Maruzen, Taros, and Intimus.13

However, despite its success, no substantial cash dividends were distributed to the stockholders because, according to Chang, the corporation was investing its funds in several real properties in Metro Manila, Visayas, and Mindanao.14

In 1998, the Ty Family sensed irregularities in Chang's dealings when their friends and relatives began questioning the manner in which products and services from TOPROS were issued receipts and vouchers from TOPGOLD, Golden Exim, and Identic. The Ty Family requested Chang to return all corporate records of TOPROS. Chang, however, offered to buy them out of their interest at TOPROS. This prompted the Ty Family to conduct an investigation which revealed that while still a Corporate Director and an officer of TOPROS, Chang, together with the individual respondents, incorporated the respondent-corporations to siphon the assets, funds, goodwill, equipment, and resources of TOPROS. According to TOPROS, Chang used its properties in organizing the respondent-corporations and obtained opportunities properly belonging to it and its stockholders to their damage and prejudice. Chang was, thereafter, ousted as Corporate Director and officer of TOPROS; and the instant case was filed against him.15

Meanwhile, TOPROS sought an ex parte issuance of a writ of preliminary attachment against the respondent-corporations and individual respondents (collectively, respondents) and prayed for: (1) an accounting for all the profits and the refund of the same to TOPROS; (2) the dissolution of the respondent-corporations; (3) the declaration as illegal and fraudulent all the transfers and acquisitions made by Chang in his favor and that of the other respondents; (4) respondents to reconvey to TOPROS the properties which they fraudulently registered in their individual and corporate names; and (5) payment of damages.16

The SEC issued a Writ of Preliminary Attachment in favor of TOPROS wherein the latter posted a bond in the amount of P90,000,000.00 representing its alleged damage.17

For his part, Chang denied the charges and asserted that from TOPROS' inception until his ouster as President and General Manager therein, he alone ran TOPROS and shouldered its liabilities. He further asserted that: (1) even with the absence of assistance from the Ty Family, they received an estimated P14,000,000.00 cash dividends spread throughout the 15 years of his incumbency in the corporation; (2) he was able to save TOPROS from the economic crisis in 1983 through personal loans and surety agreements with Chinabank; (3) he registered the trade name and logo of the corporation and was able to develop its goodwill all over the country; (4) he promoted the only Filipino brand of office machine, "Ultimax" and eventually patented it under the name of TOPROS, even though he was the one who coined its name; and (5) it was during the time that he was signing as surety for the loans of TOPROS that he, together with the individual respondents, formed the respondent-corporations.18

Chang furthermore alleged that the Ty Family knew that he organized the three corporations during his incumbency as President and General Manager of TOPROS. In 1993, Golden Exim and Identic were exhibitors, together with TOPROS, in the Philippine Office Machine Distributors Association (POMDA), wherein Ramon was a director while his son, Warren Ty (Warren), was a member of the Exhibit Committee. Golden Exim, Identic, together with TOPROS, and Pantrade marketed the product "Green-C Chlorella." In the minutes of the special meeting of Identic in April 1989, Warren signed as a stockholder. Then in April 1989, Warren acquired the shares of Edwin Tan in Identic through a Deed of Assignment.19

Chang also explained that: (1) from June 1997 to March 1998, he opened several letters of credit for TOPROS through trust receipt arrangements with Chinabank and before the trust receipts fell due, he took up the matter of repayment with Spouses Ty; (2) Ramon, however, passed the matter to him and told Chang that if repayment was not possible, considering that TOPROS was already heavily in debt, Chang should just let the corporation go bankrupt; (3) he personally guaranteed TOPROS' loans, and, because of his fear of being charged with estafa, he was compelled to seek other sources to pay off TOPROS' indebtedness; (4) when the patriarch, Ramon, was no longer interested in rehabilitating TOPROS and Chang wanted to protect his credibility and the welfare of 200 employees who were about to lose jobs, he took it upon himself to serve the clients of TOPROS through TOPGOLD which individual respondents incorporated in 1997; and (5) he alone was able to pay TOPROS' loans including the payment of separation pay of its employees.20

In their Answer Ad Cautelam21 dated September 3, 1999, individual respondents, excluding Chang, questioned the jurisdiction of the SEC. They alleged that the case is purely intra-corporate between Chang and TOPROS of which they are not stockholders. They also averred that the SEC has no jurisdiction to order the dissolution of Golden Exim, Identic, and TOPGOLD as there must be a separate proceeding for such purpose.22

TOPROS presented, as witnesses, Yaona and Jennifer while respondents presented Chang, Hector, Sheriff Eduardo Grueso, and Manuel Peralta.23

The RTC held that the case filed by TOPROS is an intra-corporate controversy between TOPROS and Chang. However, because of allegations of fraudulent utilization and siphoning of resources, opportunities, and contracts belonging to TOPROS by Chang, together with the individual respondents and the respondent-corporations, respondents are indispensable parties to the case who must be joined as party defendants.26

The RTC also ruled that Chang violated his fiduciary duties and was guilty of disloyalty to TOPROS for which he must be held accountable under Sections 31 and 34 of The Corporation Code of the Philippines (Corporation Code).27 Chang established Identic, Golden Exim, and TOPGOLD which are in the same line of business of TOPROS while still an officer and director thereof. He acquired business opportunities which should have belonged to TOPROS.28

Chang and the other respondents filed their separate petitions for review which were consolidated and resolved by the CA.29

According to the CA, records do not show that TOPROS even attempted to adduce evidence that Chang and individual respondents have complete control over TOPGOLD, Golden Exim, and Identic as all TOPROS did was to show that Chang and the other individual respondents were incorporators and/or officers of the respondent-corporations and that Chang substantially owned them. It ruled that given that Yaona, Jennifer, and Warren were the Corporate Treasurer, Secretary, and Chairman, respectively, of the Board of Directors of TOPROS, it could not see how Chang could have complete dominion over TOPROS' funds. It further held that TOPROS' mere allegation that Chang and the other individual respondents fraudulently siphoned off its funds and assets based mainly, if not solely, on the latter's establishment of the respondent-corporations does not amount to clear and convincing evidence sufficient to support allegations of fraud. Thus, the RTC had no justifiable reason to pierce the veil of corporate fiction.32

The CA furthermore held that there were only mere innuendos of disloyalty. Ramon, the patriarch of the Ty Family with whom Chang directly dealt with, was not presented by TOPROS as a witness. Yaona's statements, which were derived from pronouncements of her husband, Ramon, were mere hearsay and of no probative value. The RTC's finding that Chang was guilty of disloyalty because of his subsequent acquisition of the service contract previously entered into by TOPROS and Linde Refrigeration Phils., Inc. (Linde) failed to consider that during that period, TOPROS was either closing down or had already closed down. This was also the scenario with regard to the similar advertisements of TOPROS and TOPGOLD considering that TOPROS did not refute that TOPGOLD started using the advertisements only in 1997.33

TOPROS filed a Motion for Reconsideration, but the CA denied it on January 2, 2012.34

Petitioner asserts that: (1) Chang is guilty of violating the Corporation Code particularly Section 31, as he brazenly disregarded the director's duty of loyalty; (2) he established the respondent-corporations to acquire and utilize the assets, funds, properties, and resources of TOPROS; and (3) he also violated Section 74 of the Corporation Code in failing to provide the other directors access to the financial records of TOPROS.36

According to TOPROS, Chang's acts amounted to violation of the "doctrine of corporate opportunity" which rests on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation calls for protection. If, in such circumstances the interests of the corporation are betrayed, the corporation may elect to claim all the benefits of the transaction for itself and the law will impress a trust in favor of the corporation upon the property interest and profits acquired.37

In his Comment,38 Chang avers that: (1) the doctrine of corporate opportunity does not apply in the case because he was advised to allow the corporation to go under due to its indebtedness; (2) the doctrine of corporate opportunity applies only if the corporation is financially able to undertake its business; (3) TOPROS failed to prove the claim of fraud by preponderance of evidence of fraud; (4) TOPROS' witnesses admitted that Chang and Ramon had always been in close coordination in handling the affairs of TOPROS, while members of the family formed part of the new businesses alleged to be part of the scheme to defraud TOPROS; and (5) when Ramon advised Chang that they were no longer interested to pursue the business and was willing to just have the business go under, TOPROS' witnesses admitted that Chang was in constant communication with Ramon.39

Respondent-corporations in their Comment40 also allege that: (1) their incorporations were with the knowledge, approval, and participation of the Ty Family; (2) there was also no evidence that respondents were "dummies" of Chang; neither was there evidence, such as account books, vouchers, checks, etc., to support the allegation that vast amounts of TOPROS's resources were channeled to, and received by the respondent-corporations; and (3) there is no confusion between the names TOPROS and TOPGOLD. "TOPGOLD" is merely a descriptive name while "TOPROS" is an acronym that stands for Total Office Products and Services.41

Whether Chang is liable for violation of his fiduciary duties under the Corporation Code.

Batas Pambansa Blg. (BP) 68 or the Corporation Code was enacted in 1980. In 2019, RA 11232, otherwise known as the "Revised Corporation Code of the Philippines" (RCC), was passed and repealed BP 68.42 As the acts complained of took place under BP 68, the Court shall refer to the provisions under BP 68.

Generally, Rule 45 petitions can raise only questions of law, as this Court is not the proper venue to consider factual issues. However, a departure from the general rule may be warranted where, as in the case, the findings of the CA are contrary to those of the trial court.43

Here, the CA had different factual findings from the RTC which necessitates the Court's review of the evidence presented by the parties. After a judicious review of the documentary and testimonial evidence presented, the Court finds that a reversal of the CA ruling is warranted.

The doctrine of corporate opportunity traces its roots to the general principles on directors' and officers' liabilities.

As a rule, a corporation is a juridical entity that is vested with a legal personality separate and distinct from those acting in its behalf, and in general, from the people comprising it. Following this principle, obligations incurred by the corporation, acting through its directors, officers and employees are the corporation's sole liabilities. A corporate director, trustee, or officer is generally not held personally liable for obligations that are incurred by the corporation. This legal fiction, however, may be disregarded—through the piercing of the corporate veil—if, inter alia, it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.44

Section 31 of the Corporation Code (now Section 30 of the RCC) specifies the liabilities of directors, trustees, or officers. It reads:

Through Associate Justice Samuel H. Gaerlan, the Court is reminded of and finds it useful to look at the deliberations of BP 68 or the Corporation Code wherein then Minister Estelito Mendoza highlighted the intent of introducing Sections 31 to 34 to ensure that directors or corporate officers fulfill their fiduciary duties to the corporation.

Evidently, the intent of the framers of Section 31 of the Corporation Code was to codify the duty of loyalty of directors and corporate officers that is to inform and offer to the corporation business opportunities which, by reason of their office, they acquire or become aware of. Only when the corporation, after having been offered the business opportunities, and rejects them, that a director can take advantage thereof.

A look at the legislative records would further reveal the intent of the legislators to make a director or corporate officer liable to account for any profits derived from business opportunities which should have belonged to the corporation, unless his acts were ratified in accordance with Section 34 of the Corporation Code.

In 1979, the Court through Gokongwei v. Securities and Exchange Commission47 (Gokongwei) pronounced that the doctrine on corporate opportunity "is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests."48 It "rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection."49

In 1992, the Court in Ponce v. Legaspi50 reiterated that it is unfair for a director or any other person occupying a fiduciary position in the corporate hierarchy from engaging in a venture which competes with that of the corporation.51

Then in 1993, the Court in Prime White Cement Corp. v. IAC,52 highlighted the duty of loyalty of a director, in this wise:

In 2009, the Court summarized, through Strategic Alliance Development Corp. v. Radstock Securities Limited,54 the three-fold duty of members of the board of directors: duty of obedience, duty of diligence, and duty of loyalty. This means that directors: (1) shall direct the affairs of the corporation only in accordance with the purposes for which it was organized; (2) shall not willfully and knowingly vote for or assent to patently unlawful acts of the corporation or act in bad faith or with gross negligence in directing the affairs of the corporation; and (3) shall not acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees.55

The duty of loyalty in particular prohibits corporate directors, trustees, and officers from acquiring or attempting to acquire any personal or pecuniary interest—or any other interest for that matter—in conflict with or adverse to their duty as corporate fiduciaries.56

The recent case of Ient v. Tullet Prebon (Philippines), Inc.,57 also discussed the relationship of the doctrine of corporate opportunity to the duty of loyalty.58

Unfortunately, none of the aforementioned cases have set actual parameters to determine what is considered as corporate opportunity that gives rise to a claim of damages. There are still no guidelines as to what factors should be considered by the courts in determining the award of damages under Section 34. Hence, the need at this time for the Court to fill the gaps of jurisprudence.

As raised by Associate Justice Estela M. Perlas-Bernabe, and echoed by Associate Justices Alfredo Benjamin S. Caguioa and Amy C. Lazaro-Javier, the Court will look at several US cases to guide us in ascertaining the proper parameters and guideposts that will be useful and appropriate in our jurisdiction.

The corporate opportunity doctrine in US jurisprudence prohibits one who occupies a fiduciary relationship to a corporation from acquiring, in opposition to the corporation, property in which the latter has an interest or tangible expectancy or that is essential to its existence. Varying tests, however, have been established by different State jurisdictions in determining whether such doctrine has been breached.

First, "the line of business test." This test holds that a transaction is a corporate opportunity if it is within the scope of the corporation's own activities and of present or potential advantage to it. Under this test, corporate participants must refrain from taking for themselves the types of transactions in which their corporation normally engages.59

Second, "the interest or expectancy test." This test provides that "an opportunity is open to the director unless the corporation has an interest already existing [in the opportunity], or x x x it has an expectancy growing out of an existing right."60 It does not bar directors from every transaction that appears useful to the corporation in hindsight, but only prevents the acquisition of property that the corporation needs or is seeking.

Third, "the American Law Institute (ALI) test." This provides that a director or senior executive may not take advantage of a corporate opportunity, unless: (a) he first offers the corporate opportunity to the corporation and makes disclosure concerning the corporate opportunity; (b) the corporate opportunity is rejected by the corporation; and (c) the rejection of the opportunity is fair to the corporation, or authorized by disinterested directors in a manner that satisfies the standards of the business judgment rule, or authorized or ratified by disinterested shareholders, and the shareholders' action is not equivalent to a waste of corporate assets. For this purpose, the ALI test defines a corporate opportunity as: (1) any opportunity to engage in any business activity of which a director or senior executive becomes aware either in connection with his functions as director or senior executive or under circumstances that should reasonably lead him to believe that the person offering the opportunity expects him to offer it to the corporation, or through the use of corporate information or property, if the resulting opportunity is one that the director or senior executive should reasonably be expected to believe would be of interest to the corporation; or (2) any opportunity to engage in a business activity—which includes the acquisition or use of any contract right or other tangible or intangible property—of which a senior executive becomes aware, if he knows or reasonably should know that the activity is closely related to the business in which the corporation is engaged or may reasonably be expected to engage.61

Common to these three tests is that they all state that "corporate opportunity exists when a proposed activity is reasonably an incident to the corporation's present or prospective business and is one in which the corporation has the capacity to engage."62

In the case of Guth v. Loft, Inc.63 (Guth), the Supreme Court of the State of Delaware integrated these tests and elucidated as to when a corporate opportunity exists, when a corporate director or officer breaches his/her fiduciary duty to the corporation that he/she serves, and the consequences of such breach. To quote:

In the latter case of Broz v. Cellular Information Systems, Inc.65 (Broz), the Guth test on corporate opportunity was synthesized into four aspects, viz.:

As clarified by Broz, however, the Guth test only sets guidelines, and that ultimately, "[n]o one factor is dispositive and all factors must be taken into account insofar as they are applicable."67 Thus, the determination of whether or not a corporate director/officer has violated the doctrine "is a factual question to be decided by reasonable inference from objective facts."68

In addition to these cases, Associate Justice Alfredo Benjamin S. Caguioa raises other tests for the En Banc's consideration. First is the "fairness" test, under which the test of whether an opportunity is a corporate one rests on the query of whether a fiduciary's appropriation would fail the "ethical standards of what is fair and equitable in a particular set of facts."69 It is similar to the line-of-business test in that it may disallow appropriation of not only existing but prospective opportunities of the corporation. While it admittedly poses "line-drawing"70 problems with respect to delineating between appropriations that are fair to the corporation and those that are not, this test allows for malleability in the appreciation of what constitutes the foundational premise of fairness vis-a-vis corporations, consistent with the inclination of our legislative history, as pointed out by Associate Justice Samuel H. Gaerlan, that sought to codify the premium placed on the fiduciary duties of a corporate officer.71

Second is Thorpe v. CERBO, Inc.72 (Thorpe). The case involved a shareholder who sued the company CERBO and its controlling shareholders who were also its officers and directors for breach of their duty of loyalty through the usurpation of a corporate opportunity. The officers and directors of CERBO objected to a third-party proposal because it would erode the control premium of their stocks. The Chancery Court appreciated the nuanced role of the officers and directors and as controlling shareholders in that while said officers did breach their duty of loyalty for failing to fully disclose the corporate opportunity, it also noted that as controlling shareholders, they could veto any transaction that would have constituted a sale of all or substantially all of the corporation's assets, so that the Court held that while there was a breach of loyalty, there was effectively no injury to the corporation. Thorpe would therefore be valuable in the appreciation of whether or not a director or officer of the corporation under fire pursuant to the corporate opportunity doctrine could not also have validly undertaken the same action in a different corporate capacity.73

Third is the case of Benerofe v. Cha,74 which offers a defense against the corporate opportunity doctrine. The case involved shareholders who filed a case against their corporation Inorganic Coatings, Inc. (ICI) and its directors for allegedly entering into a stock purchase agreement that favored another corporation, designees of which also sat in the ICI's board. The court ruled that the shareholders failed to prove that the board of directors usurped a corporate opportunity of ICI since it failed to prove that ICI was in fact financially capable of exploiting the corporate opportunity that was supposedly usurped. The case would therefore be useful in refining the court's appreciation of the corporate opportunity doctrine, specifically in light of the "incapacity" defense, or the defense that submits that an opportunity is only a corporate one if the corporation itself could have, on its own, been able to exploit or seize the same had it not been appropriated by the fiduciary.75

Finally, another possible defense mentioned by Associate Justice Alfredo Benjamin S. Caguioa is the "source" defense, which was acknowledged by the ALI and line-of-business tests. The source defense mainly argues that the opportunity that the fiduciary appropriated was one pertaining to the fiduciary's personal skills and expertise, and not the corporations.76

Associate Justice Amy C. Lazaro-Javier also shared that it was common law which originally imposed the duty of a fiduciary upon a director or officer. Slowly, this common law duty has been codified in common law and hybrid common-civil law jurisdictions, such as ours.77 The content of the fiduciary duty of directors and officers compels undivided loyalty which should be relentless and supreme. The highest standard of behavior is demanded which cannot be lowered even by the courts. This fiduciary duty requires directors and officers to avoid conflicts of interest with the corporation.78

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 limits the ability of those who owe a fiduciary duty to a corporation to take advantage of business opportunities that might otherwise be available to them in the absence of the fiduciary relationship. According to a branch of common law, these business opportunities refer to those that either already belongs to the company or even for which it has been negotiating.79

As it is now broadly understood, the doctrine of corporate opportunity 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 of the corporation and giving the board the option to decline the opportunity on behalf of the corporation. 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 from the wrongful transaction.80

Citing the 1995 case of Northeast Harbor Golf Club v. Harris,81 Associate Justice Amy C. Lazaro-Javier surveyed several tests in determining whether the opportunity belongs or belonged to the corporation.

First are the "line of business," "fairness," and "ALI" tests which were already discussed above. Then, there is the "combined approach" which combines the "line of business test" with the "fairness" test.

Guided by the ruling in Matic v. Waldner,82 Associate Justice Amy C. Lazaro-Javier then suggests that when deciding whether a corporate opportunity exists, that a director or officer has availed of and could be held liable for, all relevant factors must be taken into account, including:

Associate Justice Amy C. Lazaro-Javier explains that the goal of the analysis is to determine whether the opportunity fairly belonged to the corporation in the circumstances. The keystone "fairly belonged" brings together the sense of both the statutory provision which states that the opportunity "should belong" to the corporation84 and the legislative history85 of the provision that an opportunity "may be available" to the corporation.86

In fine, the above discussion leads to Associate Justice Estela M. Perlas-Bernabe's proposed guidelines which adopted the Guth ruling that is appropriate in our jurisdiction.

Thus, a claim of damages under Section 34 of the Corporation Code (now Section 33 of the RCC) arises when a corporate officer or director takes a business opportunity for his own, provided that it is sufficiently shown by the claimant that:

In determining paragraph (b), whether the opportunity is within the corporation's line of business, the involved corporations must be shown to be in competition with one another. They must be engaged in related areas of businesses, producing the same products with overlapping markets.

As pointed out by Associate Justice Marvic M.V.F. Leonen, the test laid down in Gokongwei is very much relevant to the instant case. In Gokongwei, it was held that "the test must be whether the business does in fact compete."87 It further defined "competition," as "a struggle for advantage between two or more forces, each possessing, in substantially similar if not identical degree, certain characteristics essential to the business sought."88 Factors, such as "quantum and place of business, identity of products and area of competition should be taken into consideration." The Court even pointed out that it is "therefore, necessary to show that [the director's] business covers a substantial portion of the same markets for similar products to the extent of not less than 10% of [petitioner] corporation's market for competing products."89

Consequently, it is not enough to impute bare acts of transactions in which the claimant subjectively perceives the duty of loyalty to be breached. Sufficient evidence must be presented to show that the claim of damages is indeed premised on a concrete corporate opportunity falling under the parameters above-stated. Only then may actual damages relative to such lost opportunity be awarded.

Here, the Court agrees with the RTC that Chang committed several acts showing personal or pecuniary interest that were in conflict with his duties as director and officer of TOPROS.

There is no dispute that Chang established Identic in 1989, Golden Exim in 1990, and TOPGOLD in 1998 which were in the same line of business and while still an officer and director of TOPROS.90 The Articles of Incorporation of Golden Exim and TOPGOLD show that Chang owned 80% of the shares of Golden Exim; and Chang, together with his son, owned 99.76% of the shares in TOPGOLD. The General Information Sheet of Identic also showed that Chang owned 65% of Identic.91

The service report of Linde, which was a client of TOPROS, as well as the provisional receipts issued by Golden Exim, showed that Golden Exim entered into a service contract with the same client at the same time that TOPROS was servicing it.92 In 1998, TOPGOLD published printed advertisements which were strikingly similar to those previously printed by TOPROS in 1997, with the difference that the phrase "now available at TOPROS" was changed to "now available at TOPGOLD."93

Chang, as President and General Manager of TOPGOLD, signed a deed of assignment with Hector as Service and Operations Manager of TOPROS which made it appear that TOPROS assigned its rights under several rental agreements with different entities for the lease of various kinds of office equipment to TOPGOLD. It also authorized the corresponding rental payments on the rental agreements to be paid to TOPGOLD.94

TOPGOLD uses the same address as TOPROS which not only gives it the opportunity to use TOPROS' resources but leads the public to believe that they are one and the same entity, if not intimately related to each other. The Articles of Incorporation of TOPGOLD show its address as 1465 E. Rodriguez, Sr. Ave., Cubao, Quezon City.95 A printed advertisement of TOPROS shows that it has the same address.96

A 1,445-square-meter parcel of land along E. Rodriguez Avenue, Quezon City, on which TOPROS' building stands, was registered in the name of Golden Exim in 1993 even though Golden Exim was incorporated only three years prior to the purchase of the property.97 When it was incorporated in 1990, Golden Exim only had an authorized capital stock of P2,000,000.00.98

When asked why he gave the investment opportunity to Golden Exim and not to TOPROS, Chang answered that he had to make his own living.99

For his defense, Chang argued that he did most of the work of TOPROS from its incorporation in 1983 until his ouster as President and General Manager in 1998 and that he also paid for the loans of TOPROS with Chinabank in view of his having signed as guarantor or surety for the loans.101

In his Comment, Chang states: (1) that he practically shouldered the burden of running the entire business, including bearing its liabilities, without any help from the rest of the board of directors and stockholders and that because of Mr. Ramon Ty's refusal and strict order that Chang sign the surety agreement in his personal capacity, Chang was convinced and applied for and guaranteed TOPROS' loans in his personal capacity since 1986 until the filing of the present action; (2) that in 1988, he talked to Ramon and expressed his intention of leaving TOPROS to further his business and establish a name for himself; (3) that Ramon asked him to remain with TOPROS but encouraged him to organize and establish his own corporations; that he formed Identic, Golden Exim, and TOPGOLD with the full knowledge, consent and approval of the Ty Family; and (4) that as proof, he cited the business ventures entered into by the respondent-corporations with TOPROS and the participation of Warren as incorporator and stockholder of Identic.102

However, the fact that Chang risked his own funds in running TOPROS and paying off its obligations will not absolve him of his duties as director and officer of TOPROS.

Even if admitted, the circumstances cited by Chang, which suggest of knowledge, tolerance, or even acquiescence of TOPROS to his establishment of the respondent-corporations which are in the same business as TOPROS, do not amount to the compliance required of Section 34 to absolve a director of disloyalty. The law explicitly requires that where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, he must account to the latter for all profits by refunding them, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds of the outstanding capital stock.

The Court agrees with the RTC that even if the incorporation of the respondent-corporations was with the full knowledge of the members of the Ty Family, this does not equate to consent to the prejudicial transfer and acquisition of properties and opportunities of TOPROS which Chang, through his corporations, has shown to have committed.103

Chang, to show that the incorporation of Golden Exim and Identic was with the full knowledge of the Ty Family, presented as evidence: (a) the souvenir program of POMDA Exhibit in 1993;104 (b) advertisement clippings of health product Green-C Chlorella;105 (c) letter indorsement of Ramon promoting Green-C Chlorella;106 (d) advertisement clippings of TOPROS and Golden Exim and Identic;107 and (e) cover of VAT Book of Pantrade for 1997 where Golden Exim and Identic were listed as suppliers of Pantrade.108 However, Chang failed to show that his actions have been ratified by a vote of the stockholders representing at least two-thirds of the outstanding capital stock of TOPROS.

In view of the circumstances, TOPROS was correct in pointing out that the doctrine of "corporate opportunity" applies in the case.

To determine the exact liability of Chang, however, the instant case should be remanded to the trial court for the reception of additional evidence and the reevaluation of evidence already submitted, guided by the parameters aforementioned. That is, TOPROS as claimant bears the burden of proving the specific business opportunities that gave rise to its claim of damages under Section 34 of the Corporation Code. In turn, Chang may present evidence to support his claim that: (a) the corporation was already heavily in debt and that TOPROS' patriarch, Ramon Ty, was no longer interested in corporate rehabilitation, so much so that he was already letting Chang to allow TOPROS to go bankrupt; and (b) that the corporation had already closed down prior to respondents' taking of certain corporate opportunities, among others.

Also it should be made clear that the claim for damages under Section 34 of the Corporation Code necessitates factual determinations which—while it may be arrived at with the aid of an accounting committee—must be ultimately made by the RTC itself in the exercise of its judicial functions, embodied in a final judgment.

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. Where a director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. An officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director. It is also established that corporate officers are not permitted to use their position of trust and confidence to further their private interests. 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.110

With the guidelines set forth, the courts will now be able to determine in concrete and quantifiable terms, the liability and accountability of erring directors and officers; thus, finally giving life to the statutory provisions aimed to curb disloyal acts and punish erring corporate directors and officers.

Gesmundo, C.J., Hernando, Carandang, Zalameda, M. Lopez, Gaerlan, Rosario, J. Lopez, and Marquez, JJ., concur.