Title
Total Office Products and Services , Inc. vs. Chang, Jr.
Case
G.R. No. 200070-71
Decision Date
Dec 7, 2021
Chang, TOPROS’ president, diverted corporate assets to his own firms, breaching fiduciary duties; the Supreme Court reinstated liability under the doctrine of corporate opportunity.

Case Summary (G.R. No. 200070-71)

Petitioner

  • TOPROS seeks (inter alia) an accounting and refund of profits, dissolution of respondent corporations, reconveyance of properties fraudulently registered to respondents, damages, and had obtained a writ of preliminary attachment from the SEC (later transferred to the RTC).

Respondents

  • Chang: president, general manager and shareholder of TOPROS during the relevant period; principal owner/majority shareholder of the respondent corporations.
  • Respondent-corporations: Identic (incorporated 1989), Golden Exim (incorporated 1990), TOPGOLD (incorporated 1997/1998) — alleged to be in the same line of business as TOPROS and used to divert corporate opportunities and assets.

Key Dates (derived from the record)

  • TOPROS incorporated: January 31, 1983.
  • SEC petition filed: November 17, 1998 (later amended).
  • Incorporation of Identic: 1989; Golden Exim: 1990; TOPGOLD: late 1990s.
  • RTC decision in Civil Case No. 68327: March 18, 2008.
  • Court of Appeals decision (reversing RTC): June 17, 2011; CA denial of reconsideration: January 2, 2012.

Applicable Law and Constitutional Basis

  • Constitution: 1987 Philippine Constitution (applicable because the case decision falls after 1990).
  • Corporate statutes: Batas Pambansa Blg. 68 (Corporation Code, as in force at the time of the acts complained of) — particularly Sections 31 and 34 (liability of directors/officers and disloyalty/business opportunity).
  • Procedural note: Petition initiated at the SEC, transferred to the RTC upon effectivity of RA 8799 (Securities Regulation Code); RA 11232 (Revised Corporation Code) later repealed BP 68 but BP 68 governs the conduct complained of.

Procedural History

  • TOPROS filed an amended petition at the SEC for injunction, accounting and damages; the SEC issued a writ of preliminary attachment. With RA 8799 the action was transferred to the RTC.
  • RTC (Branch 158, Pasig) ruled in favor of TOPROS (March 18, 2008), ordering accounting, refund of profits/properties, actual and exemplary damages, attorney’s fees and the formation of an accounting committee.
  • Court of Appeals reversed and dismissed the Amended Petition, dissolved attachments and found insufficient proof to pierce corporate separateness (June 17, 2011).
  • TOPROS sought review by the Supreme Court; the Court granted the petition, reversed the CA decision, and remanded the case to the RTC for further factual determination under clarified guidelines.

Factual Antecedents

  • The Ty family (Ramon and Yaona Ang Ty) and Chang organized TOPROS (1983); Chang was elected President and General Manager and received increasing shareholdings (from 10% to 20%). TOPROS became a multimillion enterprise distributing office equipment under various brand names.
  • TOPROS allegedly reinvested earnings into real property rather than distributing dividends. In 1998, the Ty family discovered irregular voucher/receipt patterns suggesting that TOPGOLD, Golden Exim and Identic had been used to effect TOPROS business transactions. TOPROS alleges Chang formed those corporations while still a TOPROS officer and used them to siphon assets, funds, clients and business opportunities.
  • Chang’s defense: he claims he ran TOPROS alone, personally guaranteed and repaid bank loans, preserved employment for staff during financial distress, and that the Ty family knew of or acquiesced in the incorporation and activities of the respondent corporations. He also asserted that he formed the other corporations to serve clients when TOPROS was heavily indebted or closing.

RTC Findings and Relief Ordered

  • The RTC treated the suit as intra-corporate but joined the respondent corporations and individual respondents as indispensable parties due to allegations of fraudulent diversion.
  • The RTC found Chang guilty of disloyalty and breach of fiduciary duties under Sections 31 and 34 of the Corporation Code: Chang organized competing companies while still an officer/director of TOPROS, acquired business opportunities that should have belonged to TOPROS, and used corporate resources and identity to favor his own entities.
  • Relief: joint and several accountability of Chang and the respondent corporations to account for profits and properties that should have accrued to TOPROS; actual damages (to be determined by an Accounting Committee), exemplary damages (P100,000), attorney’s fees (P100,000), costs; an Accounting Committee was ordered constituted to determine specifics.

Court of Appeals Rationale for Reversal

  • The CA concluded TOPROS failed to present clear and convincing evidence that Chang or the individual respondents exercised complete control over the respondent corporations or that the respondent corporations were mere instruments of Chang. Mere status as incorporators/officers and substantial ownership, the CA held, did not automatically justify piercing the corporate veil.
  • The CA found TOPROS’ evidence largely circumstantial and relied on hearsay (e.g., statements attributed to Ramon Ty), and noted TOPROS did not rebut evidence indicating the respondent-corporations began certain activities only after TOPROS was closing. The CA therefore set aside the RTC judgment and dissolved injunctions/attachments.

Issue on Review

  • Primary legal issue: whether Chang breached his fiduciary duties under the Corporation Code (Sections 31 and 34) by appropriating corporate opportunities and otherwise acting disloyally, thereby rendering him liable to account and refund profits to TOPROS.

Legal Principles: Doctrine of Corporate Opportunity and Statutory Provisions

  • Sections 31 and 34 of BP 68 codify director/officer liability for willful unlawful acts, gross negligence, bad faith, acquisition of interests in conflict with corporate duty, and specifically provide that a director who acquires for himself a business opportunity which should belong to the corporation must account for profits (unless ratified by 2/3 of outstanding capital stock).
  • The Court emphasized the duty of loyalty as fundamental: directors/officers must not acquire personal or pecuniary interests adverse to the corporation, must disclose opportunities and allow the corporation to decide whether to accept them, and may be held to account by constructive trust principles where they seize opportunities that fairly belong to the corporation.

Tests and Guidelines Adopted by the Supreme Court

  • The Court acknowledged lack of detailed local guidelines and therefore relied on established tests in jurisprudence, notably Guth v. Loft and its synthesis in Broz v. Cellular Information Systems, and other tests (line-of-business, interest/expectancy, ALI test, fairness test) as persuasive: the Court distilled four core elements to establish a corporate-opportunity claim under Section 34:
    (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 himself, the fiduciary is placed in a position inimical to his duties to the corporation.
  • The Court emphasized no single factor is dispositive; all relevant factors (maturity of the opportunity, whether actively pursued by the corporation, corporate capacity, the manner the opportunity arose, directors’ knowledge and consent, market competition and overlap) must be considered on a case-by-case basis. The Gokongwei competition test (showing substantial market overlap) was cited as applicable when assessing line-of-business/competition.

Application of Legal Principles to the Record — Court’s Findings on Chang’s Conduct

  • The Supreme Court agreed with the RTC’s factual determinations that: Chang formed Identic, Golden Exim and TOPGOLD while still an officer/director of TOPROS; documentary evidence showed Chang’s substantial ownership (e.g., Golden Exim 80% owned by Chang; TOPGOLD 99.76% by Chang and his son; Identic 65% by Chang); Golden Exim entered into a service contract with Linde, a TOPROS client, at the same time TOPROS was servicing the client; exhibits showed provisional receipts and service reports pointing to overlap; TOPGOLD used advertisements closely resembling TOPROS’s earlier ads and used the same business address; a property where TOPROS’s building stood was registered in Golden Exim’s name.
  • Chang’s admission that he awarded the E. Rodriguez property opportunity to Golden Exim to “make his own living” was noted by the Court as indicative of a personal pecuniary interest in conflict with his corporate duties.
  • The Court found that evidence of knowledge or acquiescence by certain Ty family members did not substitute for the statutory requirement of ratification (i.e., vote of stockholders representing at least two-thirds of outstanding capital stock) required by Section 34; Chang failed to establish formal ratification.
  • The Court concluded the doctrine of corporate opportunity applies on the record and that the RTC correctly found disloyalty, but that the precise scope and quantum of liability (accounting, damages, profits, property reconveyance) require further factual development under the clarified guidelines.

Remedies, Burdens and Remand Instructions

  • The Supreme Court set asid
...continue reading

Analyze Cases Smarter, Faster
Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

About Privacy Terms