G.R. Nos. 200070-71 - Separate Concurring Opinion

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.

Directors of a corporation are bound by a three-fold duty: "duty of obedience, duty of diligence, and duty of loyalty."1 They "(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."2

Corporate officials, charged with managing the corporation, occupy a fiduciary position because they "have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders."3 Having a position of trust and confidence, corporate officers are prohibited from furthering their personal or pecuniary interests and reaping benefits, which rightfully belong to the corporation.4

As early as 1929, in Steinberg v. Velasco,5 this Court recognized that a corporation's directors "are bound to care for its property and manage its affairs in good faith, and for a violation of these duties resulting in waste of its assets or injury to the property they are liable to account the same as other trustees."6 In Palting v. San Jose Petroleum,7 which was decided prior to the Corporation Code, this Court struck down the corporation's by-laws that allowed directors and officers "to benefit themselves directly or other persons or entities in which they are interested[.]"8 This Court ruled that these provisions are contrary to the fiduciary relationship between the directors and the stockholders.9

A director's duty of loyalty is later reflected in Sections 31 and 34 of the Batas Pambansa Blg. 68, or the Corporation Code of the Philippines. These provisions state:

These provisions express what is now called the "doctrine of corporate opportunity," a term directly lifted from American jurisprudence. It was first introduced in Gokongwei, Jr. v. Securities and Exchange Commission,10citing the American case of Schildberg Rock Products Co. Inc. v. Brooks.11 The doctrine of corporate opportunity "holds personally liable corporate directors found guilty of gross negligence or bad faith in directing the affairs of the corporation, which results in damage or injury to the corporation, its stockholders or members, and other persons."12 Gokongwei, Jr. described the doctrine of corporate opportunity as:

In Gokongwei, Jr., the petitioner was barred from running as director of San Miguel Corporation. This was in line with the corporation's amended by-laws granting its Board the power by three-fourths votes to bar a stockholder from being elected as director when found to be engaged in a competitive or antagonistic business. The respondents alleged that the petitioner was engaged in businesses competitive and antagonistic to San Miguel Corporation since he owned and controlled a greater portion of his stock through Universal Robina Corporation and Consolidated Foods Corporation, which were allegedly engaged in business directly and substantially competing with allied businesses of San Miguel Corporation.14

In upholding the validity of the amended by-laws, this Court held that San Miguel Corporation can determine the qualifications of its directors, and the prohibition was reasonable as directors have a fiduciary relation with the corporation and its shareholders. A corporation can adopt by-laws for its internal government and as measure of self-protection.15 Said this Court:

This Court agreed with the respondents that allowing the petitioner to be elected as director would be detrimental to the corporation because a competitor could easily access its confidential information, such as marketing strategies and pricing policies through the common director.17 It explained:

Gokongwei, Jr. held that the test must be whether the businesses involved compete with each other. It described 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."19 To determine whether another corporation is a competitor, factors such as "quantum and place of business, identity of products[,] and area of competition should be taken into consideration."20 There must be a showing that the other corporation covers a "substantial portion of the same markets for similar products to the extent of not less than 10% of respondent corporation's market for competing products."21

In proving that San Miguel Corporation's areas of businesses are in direct competition with the other corporations, the respondents submitted data showing that Universal Robina Corporation and Consolidated Foods Corporation were present in the same product lines as San Miguel Corporation, such as eggs, chicken, poultry and hog feeds, ice cream, coffee, and textile. These products represented San Miguel Corporation's sales amounting to more than P849,000,000.00.22

Thus, for Sections 31 and 34 to be applicable, involved corporations must compete with each other. They must be present in related areas of businesses, producing the same products, such that their markets overlap. In economic terms, their products must be "substitutes." Substitutes, as the term connotes, are "pairs of goods that are used in place of each other[.]"23 For instance, movie tickets and film streaming services are substitutes of each other.24 This is more apparent in similar products with different brand names. When a certain product's price increases, buyers tend to choose a cheaper alternative. This is a measure of price elasticity of demand. Price elasticity shows how much buyers respond to a change in price.25

More specifically, cross-price elasticity of demand measures the change in demand of product A in response to the change in price of its substitute product B. When products are in direct competition with each other, the cross-price elasticity of their demands is positive or moving in the same direction.26 To illustrate, printer A and printer B are products from different brands but which offer the same technical specification. They are substitutes of each other. Hence, when printer A increases its price, the rational choice for a buyer is to buy printer B, which has become relatively cheaper. The same products will occupy the same market and will be in direct competition with each other.

This is precisely what was observed in Gokongwei, Jr. San Miguel Corporation, Universal Robina Corporation, and Consolidated Foods Corporation are competitors of each other, producing the same products and occupying the same market. Thus, the petitioner in that case could be barred by San Miguel Corporation from being its director because he was already heavily invested in the competing corporations. This Court noted that directors have access to highly confidential information such as marketing strategies and pricing structures, budget for expansion and diversification, research and development, and sources of funding, among others. San Miguel Corporation will expose itself to danger if its director could take advantage of these pieces of information and leak them to competing businesses to promote his personal interest.

In the same vein, a common director cannot discharge their duty effectively because they would be caught between two corporations that will both demand their loyalty. Inevitably, the common director will have to choose a corporation over the other. In Gokongwei, Jr.:

Here, respondent John Charles Chang, Jr., who was elected president and general manager of petitioner Total Office Products and Services, Inc., allegedly organized corporations in the same line of business as petitioner and entered into business opportunities which should be for petitioner, in violation of the doctrine of corporate opportunity.28

In his defense, respondent argued that there was no violation of Sections 31 and 34 of the Corporation Code because petitioner could not financially undertake its business. Moreover, he said that there was no fraud since petitioner's owners had been in close coordination in handling the corporation's affairs.29

I agree with the ponencia that the doctrine of corporate opportunity applies here. In determining the parameters of corporate opportunity, the ponencia identified four guidelines:

To find a violation of Sections 31 and 34 of the Corporation Code, petitioner must establish that it is in the same market and produces the same products as respondents Identic International Corporation, Golden Exim Trading and Commercial Corporation (Golden Exim), and TOPGOLD Philippines. Moreover, it must show its financial ability to exploit the opportunity and that it has an interest or expectancy in the opportunity. All these factors must be established and considered.

Here, there is no sufficient evidence that respondent usurped business opportunities which rightfully belonged to petitioner. This is a question of fact that petitioner must clearly establish. There must be proof that petitioner and the other corporations offer the same products and are in the same market. These cannot be merely presumed from the corporations' use of the same address and the registration of petitioner's land in the name of Golden Exim. Thus, I agree that petitioner should bear the burden of establishing the specific business opportunities involved in this case.

Moreover, respondent's contention that he risked his personal funds and that he was successful in keeping petitioner afloat is not a defense. Once a director usurps a business opportunity in prejudice of the corporation, there is cause of action against the director under Sections 31 and 34 of the Corporation Code. The violation is not only based on the financial impact caused but on the mere fact that a director failed to live up to their duty of loyalty to the corporation.

As a final note, the parameters established by the ponencia are mere guidelines which should find their standing in our jurisdiction. We have our own laws and rules which can be applied and interpreted based on our distinct circumstances. Thus, we should divorce ourselves from foreign doctrines which should not be treated as instinctively controlling in our jurisdiction. This Court sets its own standards and guidelines in interpreting cases. Foreign doctrines are, at best, merely persuasive and may be introduced only insofar as they are applicable here.

ACCORDINGLY, I vote to REMAND the case to the Regional Trial Court to resolve the case with dispatch.