By: Atty. Gregorio B. Austral, CPA
The doctrine of corporate opportunity
In 1979, the Court through Gokongwei v. Securities and Exchange Commission (Gokongwei) pronounced that the doctrine on 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.” It “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.
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.
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. (Total Office Products and Services (TOPROS), Inc. v. Chang, Jr., G.R. Nos. 200070-71, [December 7, 2021])