G.R. Nos. 200070-71 - 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.

I concur. At the core of the present controversy is the issue of whether or not the doctrine of corporate opportunity was violated. As I have raised during the deliberations on this case, there has been dearth of local case law delineating the more intricate parameters in the application of the corporate opportunity doctrine. Hence, adopting the Guth test,1 the Court has now carried2 the proposed guidelines for the application of the corporate opportunity doctrine as herein explained.

The corporate opportunity doctrine widely traces its roots to the general doctrine on corporate director/officer liability. As a basic rule, a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and 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 its sole liabilities. A corporate director, trustee, or officer is generally not held personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction 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.3

Section 31 of the Corporation Code, which has been retained in Section 30 of Republic Act No. 11232, otherwise known as the "Revised Corporation Code of the Philippines" (RCC), embodies the foregoing rule. As crafted, it provides for instances where corporate directors, trustees, or officers may be held personally liable for their acts related to the affairs of a corporation. These are acts which give a right of action for damages not only in favor of third parties, but also in favor of the aggrieved corporation itself:

Generally speaking, case law instructs that Section 31 of the Corporation Code reflects the three-fold duties of obedience, diligence, and loyalty.4 The duty of loyalty is of particular significance to this case.

The duty of loyalty 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.5 In Prime White Cement Corp. v. Intermediate Appellate Court (Prime White Cement),6the Court provided for a general characterization of the duty of loyalty:

The Corporation Code provides for more specific instances where the duty of loyalty may be breached. These instances are expressed in the ensuing provisions of Sections 31, namely: (a) Section 32 (Section 31 of the RCC) on self-dealing conduct; (b) Section 33 (Section 32 of the RCC) on interlocking directors; and (c) Section 34 (Section 33 of the RCC) on the acquisition of business opportunities.

The corporate opportunity doctrine is a facet of the duty of loyalty, which is specifically recognized in Section 34 of the Corporation Code8 (now Section 33 of the RCC):

As background, the doctrine of corporate opportunity is of common law origin. In our jurisdiction, the doctrine was first applied in the 1979 case of Gokongwei, Jr. v. Securities and Exchange Commission (Gokongwei).9 In Gokongwei, the Court explained that the doctrine "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";10 and "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."11

However, subsequent cases on the corporate opportunity doctrine are few and far between. A quick survey of jurisprudence reveals that aside from Gokongwei,12 only a handful of cases featured the said doctrine. These cases are Ponce v. Legaspi13 (1992), Prime White Cement14 (1993), and Ient v. Tullet Prebon (Philippines), Inc.15 (2017).

Nonetheless, as may be gleaned from the citations above, these cases basically discuss the relation of the doctrine of corporate opportunity to the duty of loyalty. None of these cases set finer parameters to determine what is considered as a corporate opportunity that gives rise to a claim for damages. None of them also express what factors should the court consider in awarding damages under a Section 34 case.

Cases in the United States (US), however, provide greater insight on these unexplored issues in our jurisprudence. Since our corporate laws were largely patterned after those in the US,16 these foreign cases are highly instructive.

Similar to our acceptation, the corporate opportunity doctrine in US case law 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.17 It is observed, however, that different State jurisdictions have established varying tests to establish whether the said doctrine has been breached.

For one, there is "[t]he line of business test [which] 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. x x x.' Under this test, corporate participants must refrain from taking for themselves the types of transactions in which their corporation normally engages."18

Also, there is "the interest or expectancy test [which evokes that] an opportunity is open to the director unless the corporation has an 'interest already existing [in the opportunity], or ... it has an expectancy growing out of an existing right.' This test does not bar directors from every transaction that appears useful to the corporation in hindsight, but only prevents 'their acquisition of property which the corporation needs or is seeking.'"19

Moreover, there is the American Law Institute (ALI) test which 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.20

According to Fletcher's Cyclopedia of the Law of Corporations, the aforementioned tests have one thing in common – they all state that "corporate opportunity exists when a proposed activity is reasonably incident to the corporation's present or prospective business and is one in which the corporation has the capacity to engage."21

Thus, in the case of Guth v. Loft, Inc. (Guth),22 the Supreme Court of the State of Delaware integrated these tests, and thereafter, 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:

In the subsequent case of Broz v. Cellular Information Systems, Inc.24 (Broz), the Guth test on corporate opportunity was synthesized into four (4) aspects:

Broz, however, clarifies that 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."26 As such, the determination of whether or not a corporate director/officer has violated this doctrine is "a factual question to be decided by reasonable inference from objective facts."27

In my view, the Guth test may be applied in our jurisdiction to help guide our courts in determining whether or not the corporate opportunity doctrine has been breached.

To recapitulate, Guth explains that "[c]orporate officers and directors are not permitted to use their position of trust and confidence to further their private interests."28 Thus, "if there is presented to a corporate officer or director a business opportunity which the corporation is financially able to undertake, is, from its nature, in the line of the corporation's business and is of practical advantage to it, is one in which the corporation has an interest or a reasonable expectancy, and, by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity for himself."29

In sum, a claim for 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:

Necessarily then, it is not enough to impute bare acts/transactions in which the claimant subjectively perceives the duty of loyalty to be breached; rather, sufficient evidence must be submitted to show that the claim for damages is indeed premised on a concrete corporate opportunity falling under the parameters above-stated. Only then should actual damages relative to such lost opportunity be awarded. Of course, it should be made clear that these parameters are general jurisprudential guidelines to be applied on a case-to-case basis.

In this case, the Regional Trial Court (RTC) found respondent John Charles Chang, Jr. (Chang) to have violated his duty of loyalty as provided under Sections 31 to 34 of the Corporation Code, in relation to the doctrine of corporate opportunity. In particular, the RTC held that Chang, as director and corporate officer of petitioner Total Office Products and Services, Inc., (TOPROS), violated the doctrine of corporate opportunity through, inter alia, Chang's involvement in the following:

Accordingly, the RTC ordered Chang "[t]o account for all the profits and properties which otherwise should have accrued to [TOPROS] and refund the same."31 To carry the judgment into effect, the RTC ordered the formation of an Accounting Committee to conduct the following:

On appeal, the Court of Appeals reversed33 the RTC's ruling due to TOPROS's alleged failure to prove its claim.

Evidently, both courts did not endeavor to first establish the significant parameters in determining if Chang did or did not violate the corporate opportunity doctrine. For its part, the RTC made a sweeping pronouncement ordering Chang "to account for all the profits and properties which otherwise should have accrued to [TOPROS] and refund the same," while the CA reversed the RTC due to the supposed lack of evidence. Without taking into account the significant parameters of corporate opportunity, the resolution of the foregoing issue would lack proper legal basis. While the RTC and CA's omission may be credited to the lack of case law on the more intricate parameters attending the doctrine, the Court now steps in to fill in the jurisprudential lacunae with the approval of the above stated guidelines, adopting the Guth test.

Accordingly, as ruled by the ponencia, the case must be remanded to the trial court to determine the exact liability of Chang, if any, following the new guidelines on corporate opportunity. For this purpose, the reception of additional evidence and reevaluation of existing evidence are necessary. Under the lens of these new guidelines, TOPROS, as claimant, bears the burden of proving the specific business opportunities that gave rise to its claim for damages under Section 34 of the Corporation Code. In turn, evidence may be submitted by Chang in his defense so as to support his argument 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 allow TOPROS to go bankrupt; and (b) that the corporation had already closed down prior to respondents' taking of certain corporate opportunities, among other things.34

IN FINE, I vote to PARTIALLY GRANT the instant petition and SET ASIDE the Decision dated June 17, 2011 and Resolution dated January 2, 2012 of the Court of Appeals in CA-G.R. SP Nos. 103047 and 103119. As herein discussed, the case should be REMANDED to the court a quo in light of the new guidelines on corporate opportunity.