The Doctrine of Corporate Opportunity
It is well-settled in law and jurisprudence that a director of a corporation holds a position of trust. As such, he owes a duty of loyalty to his corporation. This duty of loyalty mandates the members of the Board to put the interests of the Corporation before their own. Being corporate managers, they are likewise expected to seek maximum profits for the benefit of the corporation. It is because of this that a Board of Director cannot use his power for his personal knowledge and to the detriment of the corporation’s stockholders and creditors.
Section 31 of the Corporation Code lays down the Doctrine of Corporate Opportunity. The law provides:
Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation 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 to him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have been accrued to the corporation.
Section 34 of the Corporation Code likewise provides:
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.
Simply stated, under the Doctrine of Corporate Opportunity, a director who acquires for himself a business opportunity which should belong to the corporation, obtaining profits to the prejudice of such corporation is guilty of disloyalty and should therefore account for all such profits by refunding the same.
Thus, a Director who establishes a business similar to that of the Corporation he serves violates his fiduciary thereto. His fiduciary duty to the Corporation prohibits him from acquiring a personal or pecuniary interest that conflicts with his duty as a member of the Board. In such cases, it is of no moment that the Director purchased his assets with his own money and not that of the Corporation. To be sure, Sections 31 and 34 of the Corporation Code not only prohibit the unauthorized use of company property for the personal business of a Director. Instead, these two provisions likewise expressly allow a member of the Board from entering into any opportunity which the Corporation could profit from.
