Doctrine of Corporate Opportunity
In Matthew 6:24, Jesus said, “No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other.”
Similarly, in the fairly recent case of Total Office Products and Services Inc. vs John Charles Chang Jr., et. al. (GR 200070-71, 7 December 2021), the Supreme Court, in its decision stated that “a person cannot serve two 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.” The case discussed a development in corporation law, where the Supreme Court set guidelines for the application of the Doctrine of Corporate Opportunity.
The Doctrine of Corporate Opportunity 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. The Doctrine arises out of the fundamental obligation of a fiduciary not to allow a conflict of their duty with their own interests. It finds statutory basis under Section 33 of the Revised Corporation Code.
To determine in quantifiable terms the liability of erring directors and officers, and give life to the statutory provisions aimed to curb disloyal acts, the Supreme Court in the case of TOPROS v Chang set the following guidelines in determining the application of the Doctrine of Corporate Opportunity:
1. The corporation is financially able to exploit the opportunity;
2. The opportunity is within the corporation’s line of business;
3. The corporation has an interest or expectancy in the opportunity; and
4. By taking the opportunity for his own, the corporate director, trustee, or officer will consequently be placed in a position inimical to his duties to the corporation.
The Court added that in evaluating if the corporate opportunity is within the corporation’s line of business, the involved corporations must be in competition with each other, such that both are engaged in related areas of business and producing the same products with overlapping markets.
In the case of TOPROS v Chang, Chang was designated by TOPROS’ owners, Spouses Ramon and Yaona Ang Ty, to manage TOPROS. While TOPROS succeeded in becoming a multi-million enterprise, Spouses Ty eventually discovered that Chang, while being TOPROS director and officer, incorporated TOPGOLD Philippines, Inc., Golden Exim Trading and Commercial Corporation, and Identic International Corp. (Identic) to siphon assets, funds, goodwill, equipment, and resources of TOPROS. Chang also maliciously obtained opportunities belonging to TOPROS and instead awarded these to his own corporations, to the prejudice of TOPROS.
In applying the abovementioned guidelines, the Supreme Court ruled that the Doctrine of Corporate Opportunity applied to Chang. According to the High Court, the following actions constituted acts of disloyalty in violation of the Corporation Code: (1) Chang owned the majority of the shares in TOPGOLD, Golden Exim, and Dentic; (2) TOPGOLD, Golden Exim, and Identic were in the same line of business as TOPROS; (3) TOPROS has existing service contracts with Linde, a client of Golden Exim; (4) Rental payments due TOPROS were instead paid to TOPGOLD; and (5) Chang bought the land where TOPROS’ building is located in the name of Golden Exim instead of TOPROS.
The Supreme Court even ruled that the even if Chang risked his own funds in running TOPROS and paying off its obligations, these do not absolve him of his duties as director and officer of TOPRO. Also, even if the Spouses Tys knew, tolerated, or even acquiesced to Chang’s establishment of TOPGOLD, Golden Exim, and Identic, such would not absolve a director from disloyalty. In fact, profits earned from the venture are held in constructive trust for the benefit of the corporation.
Indeed, as agents entrusted with the management of a corporation, directors and officers are expected to observe the utmost level of good faith.
“The Doctrine of Corporate Opportunity 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.
“The
Supreme Court even ruled that the even if Chang risked his own funds in running TOPROS and paying off its obligations, these do not absolve him of his duties as director and officer of TOPRO.