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.

CONCURRING OPINION

LAZARO-JAVIER, J.:

I do agree that the doctrine of corporate opportunity applies in this case based on Section 34,1 in
relation to Section 31,2 Batas Pambansa Bilang 68, otherwise known as The Corporation Code of
the Philippines (Corporation Code). But while the ponencia enumerated several foreign tests to
determine corporate opportunity and ultimately went with Guth v. Loft, Inc.3 as synthesized by Broz
v. Cellullar Information Systems, Inc.,4 I humbly opine that Section 34 of the Corporation Code,
as worded, and its legislative history on what "belongs to the corporation" would have to be
the springboard for determining which of these tests or a combination of these tests, if any, would
bring about the statutory language and purpose. After all, Section 34 of the Corporation Code
recognizes the doctrine not only to demand undivided loyalty from those who occupy a fiduciary
relationship toward a corporation but also to clarify it and clear any ambiguous interpretation.

A. The Common Law Doctrine of Corporate Opportunity

Originally, it was the common law which imposed the duty of a fiduciary upon a director or
officer.5 Slowly, though, this common law duty has been codified in common law and hybrid
common-civil law jurisdictions, including ours. In our Revised Corporation Code of the
Philippines, the relevant provisions are found in Sections 29 to 33 thereof,6 and prior to this
repealing statute, the almost identical provisions of Sections 30 to 347 of the Corporation Code of
the Philippines.

In its raw and unrestrained sense, the content of the fiduciary duty of directors and officers
compels undivided loyalty. In the 1928 case of Meinhard v. Salmon,8 Justice Benjamin N.
Cardozo9 explained what such fiduciary duty entails:

Joint adventurers, like copartners, owe to one another, while the enterprise continues, the
duty of the finest loyalty. Many forms of conduct permissible in a workaday world for those
acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to
something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of
an honor the most sensitive, is then the standard of behavior. As to this[,] there has
developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the
attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the
"disintegrating erosion" of particular exceptions (Wendt v. Fischer, 243 N.Y. 439, 444). Only thus
has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It
will not consciously be lowered by any judgment of this court.10 (Emphases supplied)

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The undivided loyalty required of a fiduciary has been described as being

both relentless and supreme.11 It demands the highest standard of behavior that cannot be
lowered even by courts. In Peoples Department Stores Inc. (Trustee of) v. Wise,12 it was said
that this fiduciary duty requires directors and officers to act -
x x x honestly and in good faith vis-a-vis the corporation. They must respect the trust and confidence
that have been reposed in them to manage the assets of the corporation in pursuit of the realization
of the objects of the corporation. They must avoid conflicts of interest with the
corporation. They must avoid abusing their position to gain personal benefit. They must maintain
the confidentiality of information they acquire by virtue of their position. Directors and officers must
serve the corporation selflessly, honestly[,] and loyalty.13

xxxx

The duty to avoid conflicts of interest with the corporation includes not only the director or the
officer's personal interests but those of any other corporation in which the director or the officer is
interested.14

The corporate opportunity doctrine arises out of this fundamental obligation of a fiduciary not to
allow a conflict of their duty with their own interests.15 This 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.16 According to a branch
of common law, these business opportunities are those that either already belongs to the
company or even for which it has been negotiating.17

Thus, as it is now broadly understood, the corporate opportunity doctrine 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 this procedure is violated and a corporate fiduciary takes the corporate
opportunity anyway, then the fiduciary has violated its duty of loyalty, and the corporation will be
entitled to a constructive trust of all profits obtained from the wrongful transaction.18

Please note that the codified versions of the corporate opportunity doctrine in the Philippines
have consistently retained the key phraseology for the application of this doctrine, i.e., a
business opportunity which SHOULD BELONG to the corporation.

B. Common-Law Nature of Corporate Opportunity

Key to the analysis on whether this doctrine applies is the determination of whether the
opportunity "belonged" to the corporation. Common law has developed various
overlapping tests for this purpose.

In the 1995 case of Northeast Harbor Golf Club, Inc. (Northeast) v. Harris, et al.,19 the Supreme
Judicial Court of Maine elaborated the tests for whether the opportunity belongs or belonged to
the corporation:

1) "Line of business" test. 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. This test was applied by the Delaware Supreme Court in Guth v.
Loft, Inc., 5 A.2d 503 (Del.1939).20
2) "Fairness test." The true basis of governing doctrine rests on the unfairness in the particular
circumstances of a director, whose relation to the corporation is fiduciary, taking advantage of an
opportunity for personal profit when the interest of the corporation justly calls for protection. This
calls for the application of ethical standards of what is fair and equitable in particular sets of
facts. This test was applied by the Massachusetts Supreme Judicial Court adopted a different test
in Durfee v. Durfee & Canning, Inc., 323 Mass. 187, 80 N.E.2d 522 (1948).21

3) Combined Approach. It combines the 'line of business' test with the 'fairness' test. It engaged in
a two-step analysis, first determining whether a particular opportunity was within the corporation's
line of business, then scrutinizing "the equitable considerations existing prior to, at the time of, and
following the officer's acquisition." The Minnesota Supreme Court applied this ir, Miller v. Miller, 301
Minn. 207, 222 N.W.2d 71, 81 (1974).22

Northeast also included this test which was developed in 1992:

4) "ALI Test." The American Law Institute (ALI)23 test is centered on a strict requirement of full
disclosure prior to taking advantage of any corporate opportunity, viz.: A director or senior executive
may not take advantage of a corporate opportunity unless: (a) He first offers the opportunity to the
corporation and discloses the conflict of interest. It is rejected and the same is fair to the corporation;
or (b) The opportunity is rejected in advance, following disclosure by disinterested directors or
superior, in a manner that satisfies the standards of the business judgment rule; or (c) The rejection
is authorized in advance or ratified, following such disclosure, by disinterested shareholders, and the
rejection is not equivalent to a waste of corporate assets. For this purpose, a corporate opportunity
means: (1) Any opportunity to engage in business activity of which a director or senior executive
becomes aware, either: (a) In connection with the performance of functions as a director or senior
executive, or under circumstances that should reasonably lead the director or senior executive to
believe that the person offering the opportunity expects it to be offered to the corporation; or (b)
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 business activity of which a senior executive
becomes aware and knows is closely related to a business in which the corporation is engaged or
expects to engage.24

The foregoing common law tests were meant to define the elements of corporate or business
opportunity, the acquisition or attempt to obtain it would be actionable under Sections 31 and 34 of
the Revised Corporation Code of the Philippines or its earlier version. I understand why these
tests have been discussed prominently in the ponencia – precisely because we would want the
public to know whena particular potentially or already gainful endeavor amounts to
a corporate or business opportunity that a director or officer is barred from acquiring. For
example, if Total Office Products and Services (TOPROS) were procuring and marketing only high-
end typewriters, and Mr. John Charles Chang (Mr. Chang) in the course of his employment with
TOPROS learned of computer-enhanced word-processing machines and this new equipment's
likelihood of driving the typewriters out-of-business, would he be barred by his fiduciary duties from
himself procuring and marketing these new machines as this endeavor would fall under
a corporate or business opportunity?

C. Codified Nature of Corporate Opportunity

Inferring from Section 34 of the repealed Corporation Code of the Philippines and Section 33 of
the Revised Corporation Code of the Philippines, a corporate opportunity is a business
opportunity that "should belong" to the affected corporation. Unfortunately, however, there is no
definition in the statutes of what should belong means. In the legislative deliberations on
Section 34, Minister Estelito Mendoza (Minister Mendoza) explained corporate opportunity in this
manner –

MR. MENDOZA. In my opinion, it must not only be made known to the corporation; the corporation
must be formally advised and if he really would like to be assured that he is protected against
the consequences provided for in Section 34, he should take such steps whereby the opportunity
is clearly presented to the corporation and the corporation has the opportunity to decide on whether
to avail of it or not and then let the corporation reject it, after which then he may avail of it. Under
such circumstances, I do not believe he would expose himself to the consequences provided for
under Section 34.

Precisely, the reason we have laid down this ruling in statutory language is that for as long
as the rule is not clarified there will be ambiguity in the matter. And directors of corporations
who may acquire knowledge of such opportunities would always be risking consequences
not knowing how the courts will later on decide such issues. But now with the statutory
rule, any director who comes to know of an OPPORTUNITY THAT MAY BE AVAILABLE TO
THE CORPORATION would be aware of the consequences in case he avails of that
opportunity without giving the corporation the privilege of deciding beforehand on whether to
take advantage of it or not.25 (Emphases and underscoring supplied)

xxxx

One would immediately notice the shift from Minister Mendoza's opportunity that may be
available to the corporation to the statutory versions of which should belong to the corporation.
The former "may" connotes inclusiveness and potentiality. The
latter "should" connotes restrictiveness and precision or certitude. It is, thus, now up to this
Court to define the key element of corporate opportunity in light of the identically worded
statutory provisions and the history of the Corporation Code of the Philippines with the
guidance of the common law tests on what constitutes a corporate opportunity.

D. Working Legal Definition of Corporate Opportunity

I appreciate the ponencia's effort to define what prohibited corporate opportunity entails.
Quoting Broz v. Cellular Information Systems, Inc.,26 Associate Justice Henri Jean Paul Inting
held that a corporate opportunity exists where:

1. the corporation is financially able to exploit the property;

2. the opportunity is within the corporation's line of business;

3. the corporation has an interest or an expectancy in the opportunity; and

4. by taking the opportunity for [their] own, the corporate fiduciary (i.e., corporate director, trustee, or
officer) will thereby be placed in a position [inimical] to his or her duties to the corporation.27

I respectfully submit, however, that the elements identified in the ponencia do not accurately
reflect both the statutory provision that the opportunity SHOULD BELONG to the corporation and
the legislative history of this provision that an opportunity that MAY BE AVAILABLE to the
corporation would also be a corporate opportunity. It appears that the elements
are predisposed to the textual qualification of the corporate opportunity as something that should
already belong to the corporation to the prejudice of the intent behind the text that an
opportunity that may be available to the corporation could also be actionable as a corporate
opportunity.

It is true that the views expressed during legislative debates may be resorted to clarify ambiguities in
the language of the statute. This is precisely the case here – what "should belong to the
corporation" means is ambiguous. The ponencia admits this fact. It was for this reason that it had
an extensive reference to and discussion of the common law tests of what corporate
opportunity is. Hence, to come up with a working legal definition of corporate opportunity, we
must construe together the statutory provision that the opportunity SHOULD BELONG to the
corporation and the legislative history of this provision that an opportunity that MAY BE
AVAILABLE to the corporation would also be a corporate opportunity.

For this reason, when deciding whether a corporate opportunity exists that a director or an officer
has availed of and could be held liable for, all relevant factors must be taken into
account, including:

 the maturity of the opportunity;

 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 the 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 had knowledge of director's pursuit of the
opportunity;and,
 whether the other director's gave their fully informed consent to the director's pursuit of the
opportunity.28

The overall 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 essence of both the statutory provision that the opportunity SHOULD BELONG to the
corporation and the legislative history of this provision that an opportunity that MAY BE
AVAILABLE to the corporation would also be a corporate opportunity. More, prohibiting a director
or an officer from taking advantage of an opportunity that fairly belongs to the corporation
is consistent with their strict fiduciary ethic. It is only by interpreting the statutory provision in light of
the legislative history in this manner of fairly belongsthat we are able to account for the true
fiduciary nature of the positions of director or officer.

Maturity of the Opportunity and Active Pursuit by the Corporation

The maturity of the opportunity includes both a "mature" or "ripe" or "immediately available"
opportunity and "potential" opportunities.The latter is required by the strict ethic imposed on
fiduciaries. Thefiduciary duty does not make a director or an officer's liability solely to hinge on
proof of an actual conflict of duty and self-interest" but also on a potential of such conflict.29 Thus:

To recapitulate, the corporate fiduciary duty exacts from directors a strict ethic to act honestly
and in good faith in the corporation's best interests. In the general terms employed by Canadian
Aero, this holds directors to the obligations of acting towards companies on whose boards they sit
with "loyalty, good faith[,] and avoidance of conflict of duty and self-interest." This involves a
duty not just to avoid actual conflict of duty and interest, but also potential conflict.30 (Emphases
supplied)

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A conflict is a qualifying "potential" conflict only if to an objective or a reasonable person looking
at the relevant facts and circumstances of a particular case there is a real sensible possibility and
more than a theoretical conflict.31A "potential" conflict excludes something one "could [only]
imagine [as] some situation arising which might, in some conceivable possibility not objectively or
reasonably contemplated, result in a conflict.

Thus, due to the strict ethic that is imposed on directors or officers, a breach of fiduciary duty can
occur when the diverted opportunity is a potential, rather than a mature opportunity, and even
when the corporation is not actively pursuing the business opportunity.

Nature of the alleged "insider" information and opportunity

The manner in which the information and opportunity came to the knowledge of the director or
officer is notdeterminative but is a fact to be taken into account in the context of the director or
officer's role as a fiduciary.32 The information and opportunity need not be presented as
an "insider" event or something that was known or availed by a director or officer qua
director or officer.33 The information or opportunity does not have to be acquired while acting as
directors or officers and its prohibitory effect is not limited to benefits acquired by reason
of or during the holding of those offices.34

Limits on Liability of Directors and Officers

Another way to analyze the extent of the duty of a director or officer under this doctrine is to
examine whether any defenses may be raised by a director or officer to limit their liability. This real
limitation upon their liability is nothing short of their fully informed consent. As in our
codification of the corporate opportunity doctrine, the only defense available to them is that they
made the profits with the knowledge and assent of the corporation. This arises again from
their fiduciary position vis-a-vis the corporation – "a breach of fiduciary duty occurred, not only
because the opportunity belonged to the corporation, but because the fiduciary obtained the
opportunity either secretly or without the approval of the company."35

E. Application of the Corporate Opportunity Doctrine to the Case at Bar

As exhaustively narrated in the ponencia, Mr. Chang executed crude acts that brazenly usurped
business opportunities that fairly belonged to TOPROS. These opportunities had long matured as
they were in fact existing and ready to be as they were in fact tapped by Mr. Chang. Had these
business opportunities not been hidden by Mr. Chang from TOPROS, the latter could have actively
pursued and taken advantage of them as the opportunities were all in its line of business. Mr. Chang
learned of these opportunities precisely because of his multiple roles as one of TOPROS' directors
and its top officer.

F. Conclusion

As a result, I vote to allow the present petition and return the matter to the trial court to determine the
extent of the liability for damages of Mr. John Charles Chang.