I.

Doctrine of 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
(Gokongwei v. SEC)
- 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 (Ponce v. Legaspi)
- three-fold duty of members of the board of directors:
a. (obedience) shall direct the affairs of the corporation only by the purposes
for which it was organized;
b. (diligence) 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
c. (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.
The doctrine of corporate opportunity traces its roots to the general principles on directors'
and officers' liabilities.
GR: 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.
E: 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.
Sec. 30. Liability of directors, trustees or officers. — Directors or trustees who willfully
and knowingly vote for or assent to patently unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire
any personal or pecuniary interest in conflict with their duty as such directors or trustees
shall be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty,
any interest adverse to the corporation in respect of any matter which has been reposed
in him in confidence as to which equity imposes a disability upon him to deal in his
behalf, he shall be liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation.
- no more than a consequence of the requirement that the position of membership in
the Board of Directors is a position of high responsibility and great trust. The
responsibility of a director is to assure that the Board of Directors, which means his
colleagues acting together, does not act in a manner that is unlawful or to the
prejudice of the corporation because of the personal or pecuniary interest of the
directors.
- the intention of the framers was to codify the duty of loyalty of directors and
corporate officers which is to inform and offer to the corporation business
opportunities which, because 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.
- 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
 Sec. 33. Disloyalty of a director. — Where a director, by virtue of his office, acquires for
himself a business opportunity which should belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, he must account to the latter for all such
profits by refunding the same, unless his act has been ratified by a vote of the
stockholders owning or representing at least two-thirds (2/3) of the outstanding capital
stock. This provision shall be applicable, notwithstanding the fact that the director risked
his own funds in the venture.

Sections 30 to 33 to ensure that directors or corporate officers fulfill their fiduciary duties to
the corporation.

US JURISPRUDENCE

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. (whether the opportunity belongs to
the corporation)
1. "the line of business test." - a transaction is a corporate opportunity if it is within
the scope of the corporation's activities and of present or potential advantage to it.
- corporate participants must refrain from taking for themselves the types of
transactions in which their corporation normally engages.
2. "the interest or expectancy test." - "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."
- 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.
3. "the American Law Institute (ALI) test." - 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 discloses
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.
- 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 a
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.
 Common to these three tests is that 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."

Associate Justice Alfredo Benjamin S. Caguioa

A. Guth v. Loft, Inc. 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. And, 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, interests and profits so acquired

*** raises other tests for the En Banc's consideration.

1. "fairness" test - 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."
- 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" problems concerning 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.
2. 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.

Associate Justice Amy C. Lazaro-Javier

shared that it was common law that 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. 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.

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.
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.

Citing the 1995 case of Northeast Harbor Golf Club v. Harris, Associate Justice Amy C.
Lazaro-Javier surveyed several tests to determine 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,8Associate 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:
 Whether it was actively pursued by the corporation;
 Whether the corporation was capable of taking advantage of the opportunity
 Whether the opportunity was in the corporation's line of business or a related
business;
 How the opportunity arose or came to the attention of the director or officer;
 Whether the other directors of the corporation knew the director's pursuit of the
opportunity; and
 Whether the other directors gave their fully informed consent to the director's pursuit
of the opportunity.
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 corporation and the legislative history of
the provision that an opportunity "may be available" to the corporation.

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:
(a) The corporation is financially able to exploit the opportunity;
(b) The opportunity is within the corporation's line of business;
(c) The corporation has an interest or expectancy in the opportunity; and
(d) By taking the opportunity for his own, the corporate fiduciary (i.e., corporate director,
trustee or officer) will thereby be placed in a position inimicable to his duties to the
corporation.
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.

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." 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." 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."
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.

Chang's Liability
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 (1983).

Golden Exim – 80%

TOPGOLD - 99.76% with son
Identic - 65%

The service report of Linde, same service contact at the same time
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."

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.

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 the same entity, if not
intimately related to each other.

TOPGOLD AND TOPROS same address

The parcel of land where the bldg. of TOPROS 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.

When it was incorporated in 1990, Golden Exim only had an authorized capital stock of
P2,000,000.00.
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. “I have to have my own earning and I
have to have my own identity. And Golden Exim and Identic are all my identity.”

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.
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 concre