As a rule, a corporation is an entity vested with a legal personality that is separate and distinct from its stockholders, directors, officers and employees. Under this corporate principle of separate personality, the liabilities and obligations of a corporation are its own and as such the directors, officers and employees are not liable for the contracts they entered on behalf of the corporation.
This may be disregarded only if the corporation is used as a means to perpetrate fraud or illegal act, to evade obligation, to circumvent the law or to confuse legal issues. This doctrine of piercing the veil of corporate fiction makes the officers and directors personally liable and the separate legal personality of the corporation is disregarded.
A director of a corporation holds a position of trust. As such, he owes a duty of loyalty to his corporation. If his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage.
Directors are committed to seek the maximum amount of profits for the corporation. This trust relationship is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and interests of the stockholders.
A director who commits disloyalty to the corporation is required to account and refund the profit. Under the doctrine of corporate opportunity [Section 34, Revised Corporation Code] where a director acquires for himself a business opportunity that should belong to the corporation, he must account and refund the profits notwithstanding the fact that he risked his own funds in the venture.
In a recent decision of the Supreme Court sitting en banc [with 13 Justices voting in favor] in Total Office Products & Services [TOPROS], Inc. v. John Charles Chang, Jr., et. al., G.R. Nos. 2000070-71, 07th December 2021 the doctrine of corporate opportunity was applied. The facts are: In 1982, Sps. Ramon and Yaona Ang Ty, owner of TOPROS – Total Office Products & Services, Inc. designated John Charles Chang to manage TOPROS as the sole distributor of Minolta paper copiers in the country With the assurance that Chang will render exclusive and loyal service, the Ty Family gave him 10% share in TOPROS, which was increased to 20% share when it grew to a multi-million enterprise. Ty Family elected Chang as President and General Manager. But, despite its success, no substantial cash dividends were distributed to stockholders. Sps.
Ty discovered that while still a TOPROS director and officer, Chang made three [3] companies [Topgold Phils., Inc., , Golden Exim Trading & Commercial Corp. and Identic Int’l Corp.] siphoning the assets, funds, goodwill, equipment and resources of TOPROS. He obtained opportunities that should belong to TOPROS and awarded them to his own companies. After his ouster as officer and director, Chang and his three [3] companies were sued to account and refund the profits he made.
As defense, Chang risked his own money in the venture and denied any violation. The Regional Trial Court [RTC] ordered Chang to account and refund the profits. On appeal, the Court of Appeals [CA] reversed the RTC decision for lack of authority to disregard the separate legal personality of the three [3] corporations of Chang [doctrine of piercing the veil of corporate fiction]. It was held by the Supreme Court that under the law [Section 33 of the Revised Corporation Code], a director who got for himself profits and business opportunity which should belong to the corporation is duty bound to refund to the corporation the profits he derived from the opportunity.
One 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. The fiduciary duty of corporate officers and directors prohibits them from engaging in a business in direct competition with that of the corporation where he is a director by utilizing information he has received.
Under the doctrine of corporate opportunity, officers, directors and shareholders have legal responsibility, under the duty of loyalty, not to take such business opportunities for themselves. He must disclose the opportunity to the board of directors. If this process is violated and takes the corporate opportunity anyway, he violates the duty of loyalty and the company will be entitled to constructive trust of all profits obtained from the wrongful transaction. The doctrine is based on human experience that a person cannot serve two hostile masters without detriment to one of them. An officer of a corporation cannot engage in a business in direct competition with the corporation where he is a director. He is not permitted to use his position of trust to further his private interests.
