UNITED COCONUT PLANTERS BANK, PETITIONER, VS.

SECRETARY OF JUSTICE, OFFICE OF THE CHIEF

PROSECUTOR, TIRSO ANTIPORDA, JR. AND GLORIA CARREON, RESPONDENTS.

DECISION

CAGUIOA, J.:

At the outset, the Court notes that the purported "point of law still undecided in our jurisprudence - i.e.,
whether Section 144 of the Corporation Code, which provides penal sanctions for violations of 'any provision
of this Code or its amendments not otherwise specifically penalized therein,' is applicable to violations under
Section 31 of the same Code, which provides for a civil indemnity,"1 as posited by petitioner, has, in fact,
already been resolved by the Court in Ient v. Tullett Prebon (Philippines), Inc.2 (Ient). In this connection, the
Court also notes at the outset that Batas Pambansa Blg. 68, otherwise known as "The Corporation Code of
the Philippines," has been repealed by Republic Act No. 112323otherwise known as the "Revised Corporation
Code of the Philippines."

Before the Court is a Petition for Review on Certiorari4 (Petition) under Rule 45 of the Rules of Court filed by
petitioner United Coconut Planters Bank (UCPB) assailing the Decision5 dated May 24, 2013 and the
Resolution6 dated October 17, 2013 of the Court of Appeals7 (CA) in CA-G.R. S.P. No. 114184.8 The CA
Decision dismissed the Rule 65 petition for certiorari filed by UCPB and affirmed the Resolutions dated July
30, 2008 and March 1, 2010 of the Department of Justice (DOJ) Secretary while the CA Resolution denied the
motion for partial reconsideration filed by UCPB.

The Facts and Antecedent Proceedings

The CA Decision narrates the factual antecedents as follows:

x x x [UCPB], through its Legal Services Division Head, x x x Jose A. Barcelon, filed the Complaint-Affidavit
dated 23 July 2007, for violation of Section 31 in relation to Section 144 of the Corporation Code against
private respondents [Tirso Antiporda Jr. (Antiporda) and Gloria Carreon (Carreon)], docketed as I.S. No. 2007-
633, before the [DOJ].

The Complaint-Affidavit alleged: [Antiporda and Carreon] were [UCPB's] former Chairman and Chief Executive
Officer ("CEO"), and former President and Chief Operating Officer ("COO"), respectively; UCPB Capital, Inc.
("UCAP"), a wholly owned subsidiary of [UCPB], was engaged in trading, underwriting of securities and
syndication of loans from 1996 to 1998; sometime in 1998, [Antiporda and Carreon] authorized the payment
of bonuses, to some of [UCPB's] corporate officers and directors, for this purpose, 50 manager's checks
amounting to Php 117,872,269.43 were released from 6 April to 31 July 1998; on 27 February 1998, due to
substantial losses, [UCPB's] Board of Directors resolved to shorten the corporate existence of UCAP effective
31 March 1998 and approved the takeover, purchase of assets and assumption of liabilities of UCAP by
[UCPB]; when UCAP was absorbed by [UCPB], it had liabilities in the amount of Php 4.4 Billion;
notwithstanding, [Antiporda's and Carreon's] knowledge of UCAP's losses, they declared bonuses in 1998 in
bad faith, with gross negligence and in violation of [UCPB's] by-laws which requires a board authority prior to
declaration of bonuses; thus, [Antiporda and Carreon] are liable under Section 31 of the Corporation Code
which provides for the liability of directors or officers who conduct the affairs of a corporation in bad faith;
and, [Antiporda and Carreon] are criminally liable under Section 144 which provides for penalties for
violations of the Corporation Code.
[Antiporda] filed [a] Counter-Affidavit and alleged: his actions as Chairman and CEO were not done in bad
faith as he was merely guided by [UCPB's] audited Financial Statements, by-laws and policies; [UCPB's] by-
laws provided that 10% of [UCPB's] net profit is allot[t]ed as bonuses to its directors and officers, and, what is
subject to Board approval is only the manner by which [UCPB's] President distributes the 4% of the net profit
to other officers; it had been the practice of [UCPB] to pay bonuses without a board resolution; the [Bangko
Sentral ng Pilipinas (BSP)] examiners never questioned the absence of a board resolution in [UCPB's] previous
grant of bonuses; there was factual and legal basis in the payment of bonus since [UCPB's] financial
statements in 1997 showed a consolidated net income of Php 2.115 billion; there was no evidence of
[UCPB's] losses amounting to Php 4.4 billion; the Php 4.4 billion losses referred by [UCPB] was due to
depreciation in the market values of the foreclosed real properties in 1998, thus, it is appropriate to charge
these losses to years 1999 to 2003; while UCAP suffered a loss in 1997, other subsidiaries and affiliates of
[UCPB] earned profits in excess of the Php 149 million loss incurred by UCAP, which formed the basis to
declare bonuses in 1998; UCAP's loss of Php 149 million in 1997 is a mere fraction of the Php 2.115 billion
earned by [UCPB], as the parent bank; and, the action had prescribed since the alleged violation was
committed in April 1998 and more than 9 years passed when the complaint was filed in 2007.

Carreon filed [a] Counter-Affidavit and alleged: there was sufficient legal and factual justification for the grant
of bonuses since (a) it was expressly authorized by [UCPB's] by-laws, (b) it was the long-established policy and
practice of [UCPB], and (c) the financial condition of [UCPB] allowed the grant of the bonuses; the bonuses
given in a fiscal year are based on the net profit of [UCPB] in the immediately preceding fiscal year, since
[UCPB] had a net profit of Php 2.115 billion in 1997, there was a basis of bonus in 1998; the allegation of
substantial losses was contradicted by the audited financial statements of [UCPB] for 1997 and 1998; the
financial statements showing [UCPB's] losses were only released subsequent to her tenure with [UCPB]; there
is no evidence that UCAP incurred losses of Php 4.4 billion in 1997; assuming that there were losses, she
could not have known, because both the internal auditors and the independent auditors did not attest to the
losses; she was not involved in the approval or distribution of bonuses since her participation was limited in
evaluating the officers' performance; for the period covering her stay from 1993 to 1998, [UCPB's] internal
and external auditors, and the examiners of BSP never questioned the grant and distribution of the bonuses,
notwithstanding, the lack of a board resolution authorizing its grant; the presumption of regular performance
of duties (Section 3[p] and 3[q], Rule 131 of the Revised Rules of Evidence) should operate in her favor; and,
the action had prescribed.

[UCPB] filed [a] Consolidated Reply-Affidavit and alleged: the release of the bonuses was surreptitious since
there was no board approval as certified by the Certification dated 9 January 2007; [Antiporda and Carreon]
were aware of [UCPB's] losses since they participated in the board meeting where UCAP's financial problems
were discussed, particularly, the Php 4 billion worth of UCAP's liabilities; [Antiporda] admitted in his counter-
affidavit that he had knowledge of [UCPB's] losses; as high-ranking officers of [UCPB, Antiporda and Can-eon]
cannot just rely on the findings of a subordinate controller; x x x Carreon's argument that her participation
was limited, was negated by the demands and the seniority of her position and the bonuses will not be
released without [Antiporda's and Carreon's] authorization; while the 10% bonus is specifically authorized by
[UCPB's] by-laws, the manner and the procedure of the grant of the bonus[es] require the approval of the
board of directors; the action had not prescribed since the reckoning period is not the commission of the
violation but from discovery and institution of judicial proceedings, since, the issuance of bonuses was
concealed from [UCPB]; and, prescription should only run upon the discovery of the unauthorized payment of
bonuses through the special audit report of KPMG [o]n 30 June 2003.

[Antiporda] filed [a] Rejoinder Affidavit and alleged: [UCPB] did not refute that the grant and release of the
bonuses without a board resolution was a long-standing practice; [UCPB] did not deny that it is the profits of
[UCPB], as the parent bank, which were considered in granting the bonuses; thus, the Php 2.115 billion
profits of [UCPB] were sufficient basis for the bonus; [UCPB's] financial statements showed that its losses
through its assumption of liabilities from UCAP only amounted to Php 140.860 million not Php 4.4 billion,
since the Php 4.430 billion loss did not appear in [UCPB's] audited financial statements in 1997 and 1998, it is
logical to assume that the losses did not exist at such time; the cumulative losses acquired through several
years could not affect the granting of the bonus in 1998 since the bonus in question was solely dependent on
the net profits in 1997; prescription must be based on the commission of the alleged offense not on the
discovery, since the grant of the bonus was publicly-known; the checks for the bonuses were signed by the
controller and were cleared by the auditor and distributed to [UCPB's] directors and officers, thus, as early as
1998, [UCPB] had full knowledge of the facts of the alleged offense; and, the alleged discovery of the offense
on 30 June 2003, through the KPMG report, was unsubstantiated. Carreon filed [a] Rejoinder Affidavit and
alleged that the offense had prescribed since the grant of the bonus could have been discovered since all the
pertinent records would have been available to [UCPB] in October 1998.

[UCPB] and [Antiporda] filed their respective Memoranda.

On 8 April 2008, the DOJ Task Force On Bank Fraud Cases issued the Resolution, finding probable cause
against [Antiporda and Carreon] for violation of Section 31 in relation to Section 144 of the Corporation Code.
It held: the action was not barred by prescription since [UCPB's] management discovered the unauthorized
payment of bonuses only through the special audit report of KPMG on 30 June 2003; a board resolution is
required before the grant of bonus as indicated in [UCPB's] by-laws; and, arguments raised by [Antiporda and
Carreon] are matters of defense which they will have to present during trial. The corresponding Information
was filed, docketed as Criminal Case No. 08-1106 before the Regional Trial Court ("RTC"), Makati. [Antiporda]
filed the Petition for Review before the DOJ Secretary seeking to set aside the Resolution dated 8 April 2008,
and praying the Information in Criminal Case No. 08-1106, be withdrawn. It alleged: [UCPB] did not submit
the KPMG special audit report as evidence; the Investigating Prosecutor erred in disregarding the long
standing practice of the bank in granting bonuses based on [UCPB's] profits and without a board resolution;
the practice of granting bonuses without a board resolution was never questioned through the years, and
was ratified by [UCPB's] Board of directors; the BSP examiners did not cite the absence of a board resolution
authorizing the annual payment of bonuses as an audit exception; he acted in good faith in relying on
[UCPB's] practice that no board resolution is necessary; there was no finding that his acts indicated bad faith
or gross negligence, which is not presumed; there was no finding as to the presence of any of the elements
penalized under Section 31 of the Corporation Code; it was unfair that [Antiporda and Carreon] were the only
officers charged by [UCPB]; and [UCPB's] business is a heavily regulated industry and whose operations were
documented, thus, the discovery rule should not be applied.

In the assailed 30 July 2008 Resolution, the DOJ Secretary ruled Section 144 was not applicable to violations
of Section 31 of the Corporation Code, and the action against [Antiporda and Carreon] had prescribed. It
held: the penalties in Section 144 of the Corporation Code apply, only when the other provisions of the
Corporation Code, do not provide penalties; since Section 31 provides for the remedy of civil action for
damages, Section 144 does not apply anymore; the act of "gross negligence and bad faith in directing the
affairs of the corporation" can be committed only by the directors and trustees of the corporation, thus,
consistent with the principle of strict construction of penal laws, [Antiporda and Carreon] as [UCPB's] officers,
are not liable; the action has prescribed since the alleged violation, which was committed by the payment of
the bonus in early 1998, occurred more than 9 years ago; the allegation that the grant of the bonuses was
only discovered through the KPMG audit report was unsubstantiated; the granting of the bonuses was made
in public, thus, as early as 1998, [UCPB] had full knowledge of the offense and there was no need for the
KPMG audit report; and, the findings of the DOJ Secretary were equally applicable to Carreon although she
failed to appeal.
The 30 July 2008 DOJ Secretary Resolution set aside the DOJ Task Force On Bank Fraud Cases Resolution of 8
April 2008, and directed the Office of the Chief State Prosecutor to withdraw the Information in Criminal Case
No. 08-1106.

[UCPB] filed the Motion for Reconsideration. [Antiporda and Carreon] separately filed their Oppositions to
[UCPB's] Motion for Reconsideration. [UCPB] filed [a] Consolidated-Reply (To Respondents-Appellants'
Oppositions). However, the DOJ Secretary denied the Motion for Reconsideration in the assailed Resolution
of 1 March 2010.

Thus, [UCPB filed a Rule 65 Petition for Certiorari [before the CA].9

Ruling of the CA

The CA, in its Decision10 of May 24, 2013, dismissed the Rule 65 certiorari petition of UCPB. With the CA
holding that Section 31 of the Corporation Code was clear and categorical, there was therefore no room for
construction or interpretation, but only for application.11 The CA observed that there would be no basis to
subject directors, trustees, or corporate officers liable under Section 31 to the penalties under Section 144 of
the Corporation Case because Section 31 itself provides for the proper remedy, which is civil sanction for
damages rather than criminal sanction under Section 144.12 According to the CA, by providing the remedy of
damages, the legislative intent is clear that Section 31 violations are excluded from the application of Section
144; and to apply Section 144 to acts committed under Section 31 would unduly extend its application to
situations not intended by the legislature and would also violate the principle of strict construction of penal
laws.13 The CA also ruled that Antiporda and Carreon, as members of UCPB's Board of Directors, could be
held liable for violating Section 31 of the Corporation Code because Antiporda was sued in his capacity as
UCPB's Chairman of the Board while Carreon was sued in her capacity as Director, which were their
designations at the time of the alleged Section 31 violation.14 Further, the CA ruled that the action for
violation of Section 31 of the Corporation Code had prescribed.15 The CA disagreed with the DOJ Secretary in
applying the provisions of Act No. 3326,16 specifically Section 117 on the issue of prescription.18 The CA
applied Article 114619 of the Civil Code because Section 31 only provides for payment of damages as penalty
to erring directors and not fine and/or imprisonment.20 Counting four years from the commission of the
offense in 1998, and not from the KPMG special audit report in 2003, which does not pertain to the financial
losses suffered by UCPB at the time of the approval of the bonuses in 1998 and does not support UCPB's
allegation that it was only in 2003 when it could have discovered the offense committed by Antiporda and
Carreon, the action had prescribed in 2002.21 Thus, when the Complaint-Affidavit of UCPB was filed on July
23, 2007, the action had already prescribed.22 Also, the discovery rule was inapplicable given that the
approval and grant of the questioned bonuses were widely and publicly known and that UCPB belongs to the
heavily-regulated banking industry whose transactions are documented and audited by the BSP on a regular
basis.23 Finally, the CA ruled that the DOJ Secretary did not commit grave abuse of discretion amounting to
lack or excess of jurisdiction when he dismissed UCPB's complaint and ordered the withdrawal of the
Information.24 The dispositive portion of the CA Decision states:

WHEREFORE, the Petition For Certiorari is DISMISSED. The Resolution dated 30 July 2008, and the Resolution
dated 1 March 2010, are AFFIRMED.

SO ORDERED.25

Not satisfied, UCPB filed a Motion for Partial Reconsideration,26which the CA denied in its
Resolution27 dated October 17, 2013.
Hence, the present UCPB's Rule 45 certiorari Petition dated December 13, 2013. Antiporda filed his
Comment28 dated March 18, 2014. Carreon filed her Comment29 dated March 19, 2014. UCPB filed its
Consolidated Reply30 dated June 5, 2014. Antiporda filed his Memorandum31 dated April 13, 2015, while
Carreon filed her Memorandum32 dated April 23, 2015. UCPB filed its Memorandum33 dated May 11, 2015.

The Issues

The Petition raises two issues:

(1) whether the CA erred in ruling that Section 144 of the Corporation Code does not apply to
Section 31 thereof; and

(2) whether the CA erred in ruling that the action based on Section 31 of the Corporation Code had
prescribed.

The Ruling of the Court

The present case calls for the application of Sections 31 and 144 of the Corporation Code. As noted at the
outset, the Corporation Code has been repealed by the Revised Corporation Code (RCC), which became
effective on February 23, 2019. Despite the passage of the later law, the former is to be applied in this case
because the alleged violation committed by Antiporda and Carreon happened in 1998 while the Corporation
Code was in effect.

Section 31 of the Corporation Code provides:

SECTION 31. Liability of Directors, Trustees or Officers. - Directors or trustees who willfully and knowingly
vote for or assent to patently unlawful acts of the corporation or 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 in him in confidence, as to which
equity imposes a disability upon him to deal on his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would have accrued to the corporation.

The counterpart provision in the RCC is Section 30, which states:

SEC. 30. Liability of Directors, Trustees or Officers. - Directors or trustees who willfully and knowingly vote for
or assent to patently unlawful acts of the corporation or 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.

A director, trustee or officer shall not attempt to acquire or acquire [ ] any interest adverse to the
corporation in respect of any matter which has been reposed in them in confidence, and upon which, equity
imposes a disability upon themselves to deal in their own behalf; otherwise the said director, trustee or
officer shall be liable as a trustee for the corporation and must account for the profits which otherwise would
have accrued to the corporation.34
Section 144 of the Corporation Code, in turn, provides:

SECTION 144. Violations of the Code. - Violations of any of the provisions of this Code or its amendments not
otherwise specifically penalized therein shall be punished by a fine of not less than one thousand (P1,000.00)
pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30)
days but not more than five (5) years, or both, in the discretion of the court. If the violation is committed by a
corporation, the same may, after notice and hearing, be dissolved in appropriate proceedings before the
Securities and Exchange Commission: Provided, That such dissolution shall not preclude the institution of
appropriate action against the director, trustee or officer of the corporation responsible for said violation:
Provided, further, That nothing in this section shall be construed to repeal the other causes for dissolution of
a corporation provided in this Code.

The counterpart provision in the RCC is Section 170, which states:

SEC. 170. Other Violations of the Code; Separate Liability. - Violations of any of the other provisions of this
Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less
than Ten thousand pesos (P10,000.00) but not more than One million pesos (PI,000,000.00) [ ]. If the
violation is committed by a corporation, the same may, after notice and hearing, be dissolved in appropriate
proceedings before the [ ] Commission: Provided, That such dissolution shall not preclude the institution of
appropriate action against the director, trustee, or officer of the corporation responsible for said violation:
Provided, further, That nothing in this section shall be construed to repeal the other causes for dissolution of
a corporation provided in this Code.

Liability for any of the foregoing offenses shall be separate from any other administrative, civil, or criminal
liability under this Code and other laws.35

Proceeding to the first issue, UCPB argues that the civil sanction for damages under Section 31 of the
Corporation Code is not the same as the imposition of penalty because damages refer to the sum of money
that the law awards or imposes as pecuniary compensation, recompense or satisfaction for an injury done or
a wrong sustained as a consequence of a breach of a contractual obligation, a tortious act or an illegal act
while a penalty is the suffering inflicted by the State for the transgression of a law.36Citing Ramos v.
Gonong,37 UCPB posits that civil liability is not part of the penalty of the crime committed and when it is
imposed for the commission of crimes, it is neither part of, nor intended to be merged into, the punishment
of the crime.38

UCPB further argues that since Section 31 of the Corporation Code refers to "all damages x x x suffered by the
corporation" and considering that civil liability is not a penalty for the commission of a crime, the violation of
Section 31 is not, by the words used in Section 144 of the Corporation Code, "specifically penalized
therein."39 UCPB thus concludes that Section 144 should apply.40

Moreover, UCPB cites the Decision of the Special Third Division of the CA in Ient v. Gonzalez and Tullett
Prebon41 wherein the DOJ Secretary's directive to file an Information against corporate directors and officers
for violation of Sections 31 and 3442 in relation to Section 144 of the Corporation Code was upheld.43

UCPB's arguments are not persuasive enough for the Court to overturn or abandon its ruling in Ient.44

As mentioned at the outset, the Court has already ruled in Ient on the issue of the applicability of Section 144
to Section 31 of the Corporation Code. The Court, applying the rule of lenity,45 ruled in Ient that any violation
of Section 31 of the Corporation Code was not considered as a violation of any provision of such Code not
otherwise specifically penalized therein pursuant to Section 144. In other words, Section 144 did not apply to
or include in its coverage Section 31 of the Corporation Code. The Court justified its ruling in Ient, as follows:

After a meticulous consideration of the arguments presented by both sides, the Court comes to the
conclusion that there is a textual ambiguity in Section 144; moreover, such ambiguity remains even after an
examination of its legislative history and the use of other aids to statutory construction, necessitating the
application of the rule of lenity in the case at bar.

xxxx

There is no provision in the Corporation Code using similarly emphatic language46 that evinces a categorical
legislative intent to treat as a criminal offense each and every violation of that law. Consequently, there is no
compelling reason for the Court to construe Section 144 as similarly employing the term "penalized" or
"penalty" solely in terms of criminal liability.

xxxx

x x x We agree with petitioners that the lack of specific language imposing criminal liability in Sections 31 and
34 shows legislative intent to limit the consequences of their violation to the civil liabilities mentioned
therein. Had it been the intention of the drafters of the law to define Sections 31 and 34 as offenses, they
could have easily included similar language as that found in Section 74.47

xxxx

xxx Sections 31 to 34 were introduced into the Corporation Code to define what acts are covered, as well as
the consequences of such acts or omissions amounting to a failure to fulfill a director's or corporate officer's
fiduciary duties to the corporation. A closer look at the subsequent deliberations on [Cabinet Bill (C.B.)] No. 3
[(the bill that was enacted into the Corporation Code)], particularly in relation to Sections 31 and 34, would
show that the discussions focused on the civil liabilities or consequences prescribed in said provisions
themselves.

xxxx

x x x Verily, in the instances that Sections 31 and 34 were taken up on the floor, legislators did not veer away
from the civil consequences as stated within the four corners of these provisions. Contrasted with the
interpellations on Section 74 (regarding the right to inspect the corporate records), the discussions on said
provision leave no doubt that legislators intended both civil and penal liabilities to attach to corporate
officers who violate the same x x x.

xxxx

Quite apart that no legislative intent to criminalize Sections 31 and 34 was manifested in the deliberations on
the Corporation Code, it is noteworthy from the same deliberations that legislators intended to codify the
common law concepts of corporate opportunity and fiduciary obligations of corporate officers as found in
American jurisprudence into said provisions. In common law, the remedies available in the event of a breach
of director's fiduciary duties to the corporation are civil remedies. If a director or officer is found to have
breached his duty of loyalty, an injunction may be issued or damages may be awarded. A corporate officer
guilty of fraud or mismanagement may be held liable for lost profits. A disloyal agent may also suffer
forfeiture of his compensation. There is nothing in the deliberations to indicate that drafters of the
Corporation Code intended to deviate from common law practice and enforce the fiduciary obligations of
directors and corporate officers through penal sanction aside from civil liability. On the contrary, there
appears to be a concern among the drafters of the Corporation Code that even the imposition of the civil
sanctions under Sections 31 and 34 might discourage competent persons from serving as directors in
corporations.

xxxx

The Corporation Code was intended as a regulatory measure, not primarily as a penal statute. Sections 31
ℒαwρhi ৷

[and] 34 in particular were intended to impose exacting standards of fidelity on corporate officers and
directors but without unduly impeding them in the discharge of their work with concerns of litigation.
Considering the object and policy of the Corporation Code to encourage the use of the corporate entity as a
vehicle for economic growth, we cannot espouse a strict construction of Sections 31 and 34 as penal offenses
in relation to Section 144 in the absence of unambiguous statutory language and legislative intent to that
effect. When Congress intends to criminalize certain acts it does so in plain, categorical language, otherwise
such a statute would be susceptible to constitutional attack. As earlier discussed, this can be readily seen
from the text of Section 45(j) of Republic Act No. 8189 and Section 74 of the Corporation Code. We stress
that had the Legislature intended to attach penal sanctions to Sections 31 and 34 of the Corporation Code it
could have expressly stated such intent in the same manner that it did for Section 74 of the same Code.48

In view of the foregoing, the Court finds that the CA did not err in ruling that Section 144 of the Corporation
Code did not cover or apply to Section 31 of the same Code. With the passage of the RCC, will the Court
arrive at the same ruling on the first issue as it did in Ient using the same legal framework? The answer will
depend upon the factual milieu of the proceeding before the Court wherein the issue on the coverage or
applicability of Section 170 to Section 30 of the RCC will be resolved. However, it must be noted, that under
the RCC, there is now a provision on administrative sanctions that the Securities and Exchange Commission
(Commission) can impose if, after due notice and hearing, it finds that any provision of the RCC has been
violated, viz.:

SEC. 158. Administrative Sanctions. - If, after due notice and hearing, the Commission finds that any provision
of this Code, rules or regulations, or any of the Commission's orders has been violated, the Commission may
impose any or all of the following sanctions, taking into consideration the extent of participation, nature,
effects, frequency and seriousness of the violation:

(a) Imposition of a fine ranging from Five thousand pesos (P5,000.00) to Two million pesos
(P2,000,000.00), and not more than One thousand pesos (P1,000.00) for each day of continuing
violation but in no case to exceed Two million pesos (P2,000,000.00);

(b) Issuance of a permanent cease and desist order;

(c) Suspension or revocation of the certificate of incorporation; and

(d) Dissolution of the corporation and forfeiture of its assets under the conditions in Title XIV of this
Code.

The Court notes that the wording of the RCC reinforces the Court's interpretation that a violation of Section
31 of the Corporation Code, now Section 30 of the RCC, is not covered by Section 144 of the Corporation
Code, now Section 170 of the RCC. While Section 170 of the RCC now clarifies that the said Section applies to
"Other Violations of the Code" or "[violations of any of the other provisions of this Code or its amendments
not otherwise specifically penalized therein" and provides for "Separate Liability" to the effect that "[l]iability
for any of the foregoing offenses [or such violations] shall be separate from any other administrative, civil, or
criminal liability under this Code and other laws," such language is still consistent with the violations
contemplated under Section 144 of the Corporation Code - "[v]iolations of any of the provisions of this Code
or its amendments not otherwise specifically penalized therein," the operative phrase "not otherwise
specifically penalized therein" being retained. Also, the civil liability provided under Section 31 of the
Corporation Code - "liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons" and "liable as a trustee for the corporation and
must account for the profits which otherwise would have accrued to the corporation" - is phrased similarly in
Section 30 of the RCC. In either Section, no administrative or criminal liability is provided. However, as stated
earlier, under the RCC, there is now Section 158 on administrative sanctions, above quoted, that the
Commission can impose if, after due notice and hearing, it finds that any provision of the RCC has been
violated.

Thus, under the RCC, the Commission has now the authority to impose any or all of the foregoing sanctions in
case "any provision of [the RCC,] rules or regulations, or any of the Commission's orders has been violated x x
x, taking into consideration the extent of participation, nature, effects, frequency and seriousness of the
violation."

As to the second issue, UCPB's argument is anchored on the applicability of Section 144 of the Corporation
Code to Section 31.49 Since Section 144 provided as penalty imprisonment for not less than 30 days but not
more than 5 years, then the period of prescription, according to UCPB, should be 8 years for violations
penalized under special laws by imprisonment for 2 years or more, but less than 6 years pursuant to Act No.
3326.50 Citing Section 2 of Act No. 3326, which provides that "[prescription shall begin to run from the day of
the commission of the violation of the law, and if the same be not known at the time, from the discovery
thereof and the institution of judicial proceedings for its investigation and punishment," UCPB posits that at
the time of the commission of the alleged violation in 1998, there was no way that it could have taken action
on the undue payment of bonuses because the recipients of the bonuses comprised the management of the
bank with Antiporda and Carreon being the top two officers, and even when the bank changed
administrations, i.e., from the administration of Antiporda and Carreon to the next administration, there was
no way the new administration could have taken action against Antiporda and Carreon until it had
evidentiary basis, which came through only with the KPMG report of 2003.51 To UCPB, the prescriptive
period should have started to run only in 2003 when UCPB allegedly discovered the undue payment of
bonuses from the KPMG report.52

The Court having already ruled on the first issue that Section 144 of the Corporation Code did not include
violations of Section 31 as "[violations of any provisions of [that] Code or its amendments not otherwise
specifically penalize therein," wherein imprisonment for not less than 30 days but not more than 5 years was
the imposable penalty, then Act No. 3326 is not the applicable law on prescription.

The liability of the erring director, trustee or officer under Section 31 of the Corporation Code being purely
civil, i.e., "all damages resulting [from its violation] suffered by the corporation, its stockholders or members
and other persons," the Court holds that it is the Civil Code that is the controlling law. The Court thus agrees
with the CA that it is Article 1146 of the Civil Code which determines the prescriptive period. It provides:

ART. 1146. The following actions must be instituted within four years:

(1) Upon an injury to the rights of the plaintiff;

 (2) Upon a quasi-delict. (n)

To recall, the questioned bonuses were paid through 50 manager's checks amounting to P117,872,269.43,
which were released to the concerned UCPB corporate officers and directors from April 6 to July 31, 1998.
The KPMG special audit report53 was dated June 30, 2003. The Complaint-Affidavit of UCPB is dated July 23,
2007 and filed on even date with the DOJ.54

Even if the Court were to uphold UCPB's actual discovery theory, the action upon the injury to its right under
Section 31 of the Corporation Code or the damages that it had suffered by virtue of the alleged unauthorized
payment of bonuses had prescribed on July 1, 2007 or four years from June 30, 2003, the purported day of
actual discovery by UCPB. This is pursuant to Commissioner of Internal Revenue v. Primetown Property
Group, Inc.,55 where the Court held that Section 31 of the Administrative Code of 1987, which provides that
"year" shall be understood to be twelve calendar months, governs the computation of periods, being the
more recent law as compared to the Article 13 of the Civil Code, which provides that a year consists of 365
days. When UCPB thus filed its Complaint-Affidavit on July 23, 2007, the four years or 48 calendar months
prescriptive period had already lapsed.ℒαwρhi ৷

Under Article 1155 of the Civil Code, the prescription of actions is interrupted when they are filed before the
court, when there is a written extrajudicial demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor. The filing of the Complaint-Affidavit by UCPB with the DOJ did
not interrupt the prescription of its action not only because this was beyond the 48 calendar months
prescriptive period based on Section 31 of the Corporation Code, but also because it was not filed before the
proper court and finally because the Complaint-Affidavit cannot even be deemed as an extrajudicial demand
for damages given its prayer: "On the basis of the foregoing, [Antiporda and Carreon] should be held liable
under Section 31, in relation to Section 144 of the Corporation Code for being guilty of gross bad faith/and/or
gross negligence in directing the affairs of the corporation."56 Put simply, UCPB did not make a claim for any
damage in the Complaint-Affidavit it filed.

Regarding the KPMG special audit report, the Court cannot make a determination based on the "Executive
Summary"57 thereof, which UCPB attached to its Petition, that UCPB came to know of the payment of the
questioned bonuses only on June 30, 2003. The "Executive Summary" merely mentions that UCPB "has been
incurring net losses since 2000 x x x [and] its Audit Committee has recommended a special audit to determine
the performance and accountabilities of the BOD and management, as appropriate, from 1986 to
2002;"58 and the primary objective of the special audit is: "to evaluate the performance and establish
accountabilities of the BOD and management from 1986 to 2002.59 The unauthorized payment of the
bonuses was not even mentioned therein. Thus, the actual discovery theory of UCPB does not even appear to
have a factual leg to stand on.

Given that there is no factual basis from which actual discovery of the payment of the questioned bonuses by
UCPB, assuming the same to have been concealed by Antiporda and Carreon, can be based and that,
according to the CA, said payment had been widely and publicly known given that UCPB belongs to the
heavily-regulated banking industry whose transactions are documented and audited by the BSP on a regular
basis, the filing of the action for damages based on Section 31 of the Corporation Code had already
prescribed 48 calendar months or 4 years from July 31, 1998, the last release date of the 50 manager's
checks, at the latest.

Parenthetically, if the second issue is to be resolved under the aegis of the RCC and assuming that Section
170 applies to Section 30 of the RCC, prosecution of any violation of Section 30 prescribes in a year or 12
calendar months pursuant to Section 1, Act No. 3326, given that the penalty of any Section 30 violation is fine
only.
WHEREFORE, the Petition is hereby DENIED. The Decision dated May 24, 2013 and the Resolution dated
October 17, 2013 of the Court of Appeals in CA-G.R. S.P. No. 114184 are AFFIRMED.

SO ORDERED. Peralta, C.J., (Chairperson), Carandang, Zalameda, and Gaerlan, JJ., concur.

QUINTIN ARTACHO LLORENTE, PETITIONER, V. STAR CITY PTY LIMITED, REPRESENTED BY THE JIMENO AND
COPE LAW OFFICES AS ATTORNEY-IN-FACT, RESPONDENT.

[G.R. No. 212216, January 15, 2020]

STAR CITY PTY LIMITED, REPRESENTED BY THE JIMENO COPE & DAVID LAW OFFICES AS ITS ATTORNEY-IN-
FACT, PETITIONER, V. QUINTIN ARTACHO LLORENTE AND EQUITABLE PCI BANK (NOW BDO UNIBANK, INC.),
RESPONDENTS.

RESOLUTION

CAGUIOA, J.:

Before the Court are petitions for review on certiorari1 under Rule 45 of the Rules of Court respectively
filed by petitioner Quintin Llorente (Llorente) in G.R. No. 212050 and petitioner Star City Pty Limited (SCPL)
in G.R. No. 212216 assailing the Decision2 dated September 30, 2013 (Decision) and the Resolution3 dated
April 10, 2014 of the Court of Appeals4 (CA) in CA-G.R. CV No. 94736. The CA Decision affirmed with
modification the Decision5 dated April 16, 2009 rendered by the Regional Trial Court, Branch 134, City of
Makati (RTC) in Civil Case No. 02-1423. The CA Resolution dated April 10, 2014 denied the motions for
reconsideration filed by Llorente and SCPL.

The Facts and Antecedent Proceedings

The CA Decision narrates the factual antecedents as follows:

x x x [SCPL] is an Australian corporation which operates the Star City Casino in Sydney, New South Wales,
Australia. Claiming that it is not doing business in the Philippines and is suing for an isolated transaction, it
filed on 25 November 2002 through its attorney-in-fact, Jimeno Jalandoni and Cope Law Offices, a
complaint for collection of sum of money with prayer for preliminary attachment against x x x Llorente,
who was a patron of its Star City casino and Equitable PCI Bank (EPCIB, for brevity). This case was docketed
as Civil Case No. 02-1423 and raffled to Branch 134 of the Regional Trial Court (RTC) in the City of Makati.

[SCPL] alleged that Llorente is one of the numerous patrons of its casino in Sydney, Australia. As such, he
maintained therein Patron Account Number 471741. On 12 July 2000, he negotiated two (2) Equitable PCI
bank drafts with check numbers 034967 and 034968 worth US $150,000.00 each or for the total amount of
US $300,000.00 ("subject [demand/bank]6 drafts" [or simply "subject drafts"]) in order to play in the
Premium Programme of the casino. This Premium Programme offers the patron a 1% commission rebate
on his turnover at the gambling table and a .10% rebate for complimentary expenses. Before upgrading x x
x Llorente to this programme, [SCPL] contacted first EPCIB to check the status of the subject drafts. The
latter confirmed that the same were issued on clear funds without any stop payment orders. Thus, Llorente
was allowed to buy in on a Premium Programme and his front money account in the casino was credited
with US $300,000.00.

On 18 July 2000, [SCPL] deposited the subject drafts with Thomas Cook Ltd. On 1 August 2000, it received
the advice of Bank of New York about the "Stop Payment Order" prompting it to make several demands,
the final being on 22 August 2002, upon Llorente to make good his obligation. However, the latter refused
to pay. It likewise asked EPCIB on 30 August 2002 for a settlement which the latter denied on the ground
that it was Llorente who requested the Stop Payment Order and no notice of dishonor was given.

On 28 January 2003, the [RTC] deemed it proper to grant and issue a writ of preliminary attachment
because the acts of Llorente, i.e., leaving the hotel premises without informing [SCPL] of his whereabouts,
failing to pay for all the services he had availed and/or not making sure that these would be paid y the
checks he negotiated and indorsed, requesting for a Stop Payment Order despite knowledge that these
checks are to answer for the payment for all services he had availed, failing to communicate for the
settlement of his outstanding obligation and for leaving and/or transferring residence without notifying
[SCPL] of his forwarding address, are clear indications of his intention to renege on his obligation and
defraud [SCPL].

For his part, Llorente alleged that he caused the stoppage of the subject drafts' payment because (SCPL's]
personnel and representatives committed fraud and unfair gaming practices during his stay in the casino
on 12 July up to 17 July 2000. He also countered that the case should be dismissed on the ground that
[SCPL] lacks the legal capacity to sue since the "isolated tr1nsaction rule" for which it anchored its right to
bring action in our courts presupposes that the transaction subject matter of the complaint must have
occurred in the Philippines, which however, is not the situation at bar since it is clear from the narration
that the same occurred in Australia.

On the other hand, EPCIB, in its Answer, not only alleged [SCPL's] lack of personality to sue before
Philippine courts, but denied also that it unjustifiably and maliciously refused to settle the obligation since
it merely complied with the instructions of Llorente, as payee of the subject drafts, to stop payment
thereon. It further went on saying that [SCPL] had no cause of action against it because there was no
privity of contract between them. EPCIB likewise filed a cross-claim against Llorente since it already
reimbursed the lace value of the subject drafts, pursuant to the demand of the latter. For such reason, it
should be relieved of any and all liabilities under the subject drafts.

Finding that [SCPL] had the legal capacity to sue and seek judicial relief before Philippine courts, the [RTC],
on 16 April 2009, rendered a Decision holding both [Llorente and EPCIB] solidarily liable for the value of the
subject drafts. It ruled that when Llorente, as payee of the subject drafts, signed at the back thereof, he is
said to ha[ve] become an indorser who warrants that on due presentment, the instruments would be
accepted or paid or both, as the case may be, according to their tenor, and that if they be dishonored and
the necessary proceedings on dishonor be duly taken, they will pay the amount thereof to the holder. The
same is also true for EPCIB, being the drawer of the subject drafts. It is of no moment if the bank was not a
privy to the transaction for its liability as a drawer is not based on direct transaction but by virtue of the
warranties it made within the purview of the Negotiable Instruments Law. The [RTC] even pointed that
[Llorente and EPCIB] could not seek refuge on the alleged lack of notice of dishonor to them since they
were responsible for the dishonor of the subject drafts aside from the fact that it would be futile to require
such notice since it was EPCIB who countermanded the payment.

The trial court did not also consider Llorente's justification for ordering a stopped payment as it found that
it was done in order to escape liability of paying his obligations with [SCPL]. The decretal portion of [the
RTC] Decision reads as:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [SCPL] and
against both defendants Llorente and [EPCIB], as follows:

1. Ordering defendants Quintin Llorente and Equitable PCI Bank to pay the plaintiff [SCPL], jointly and
severally the amount of the subject bank drafts in the sum of us $300,000[.00;

QUINTIN ARTACHO LLORENTE, PETITIONER, v. STAR CITY PTY LIMITED, REPRESENTED BY THE JIMENO AND
COPE LAW OFFICES AS ATTORNEY-IN-FACT, RESPONDENT.

G.R. No. 212216, January 15, 2020

STAR CITY PTY LIMITED, REPRESENTED BY THE JIMENO COPE & DAVID LAW OFFICES AS ITS ATTORNEY-IN-
FACT, PETITIONER, v. QUINTIN ARTACHO LLORENTE AND EQUITABLE PCI BANK (NOW BDO UNIBANK, INC.),
RESPONDENTS.

DECISION

CAGUIOA, J.:

Before the Court are petitions for review on certiorari1 under Rule 45 of the Rules of Court respectively filed
by petitioner Quintin Llorente (Llorente) in G.R. No. 212050 and petitioner Star City Pty Limited (SCPL) in G.R.
No. 212216 assailing the Decision2 dated September 30, 2013 (Decision) and the Resolution3 dated April 10,
2014 of the Court of Appeals4 (CA) in CA-G.R. CV No. 94736. The CA Decision affirmed with modification the
Decision5 dated April 16, 2009 rendered by the Regional Trial Court, Branch 134, City of Makati (RTC) in Civil
Case No. 02-1423. The CA Resolution dated April 10, 2014 denied the motions for reconsideration filed by
Llorente and SCPL.

The Facts and Antecedent Proceedings

The CA Decision narrates the factual antecedents as follows:

x x x [SCPL] is an Australian corporation which operates the Star City Casino in Sydney, New South Wales,
Australia. Claiming that it is not doing business in the Philippines and is suing for an isolated transaction, it
filed on 25 November 2002 through its attorney-in-fact, Jimeno Jalandoni and Cope Law Offices, a complaint
for collection of sum of money with prayer for preliminary attachment against x x x Llorente, who was a
patron of its Star City casino and Equitable PCI Bank (EPCIB, for brevity). This case was docketed as Civil Case
No. 02-1423 and raffled to Branch 134 of the Regional Trial Court (RTC) in the City of Makati.

[SCPL] alleged that Llorente is one of the numerous patrons of its casino in Sydney, Australia. As such, he
maintained therein Patron Account Number 471741. On 12 July 2000, he negotiated two (2) Equitable PCI
bank drafts with check numbers 034967 and 034968 worth US $150,000.00 each or for the total amount of
US $300,000.00 ("subject [demand/bank]6 drafts" [or simply "subject drafts"]) in order to play in the Premium
Programme of the casino. This Premium Programme offers the patron a 1% commission rebate on his
turnover at the gambling table and a .10% rebate for complimentary expenses. Before upgrading x x x
Llorente to this programme, [SCPL] contacted first EPCIB to check the status of the subject drafts. The latter
confirmed that the same were issued on clear funds without any stop payment orders. Thus, Llorente was
allowed to buy in on a Premium Programme and his front money account in the casino was credited with US
$300,000.00.
On 18 July 2000, [SCPL] deposited the subject drafts with Thomas Cook Ltd. On 1 August 2000, it received the
advice of Bank of New York about the "Stop Payment Order" prompting it to make several demands, the final
being on 22 August 2002, upon Llorente to make good his obligation. However, the latter refused to pay. It
likewise asked EPCIB on 30 August 2002 for a settlement which the latter denied on the ground that it was
Llorente who requested the Stop Payment Order and no notice of dishonor was given.

On 28 January 2003, the [RTC] deemed it proper to grant and issue a writ of preliminary attachment because
the acts of Llorente, i.e., leaving the hotel premises without informing [SCPL] of his whereabouts, failing to
pay for all the services he had availed and/or not making sure that these would be paid y the checks he
negotiated and indorsed, requesting for a Stop Payment Order despite knowledge that these checks are to
answer for the payment for all services he had availed, failing to communicate for the settlement of his
outstanding obligation and for leaving and/or transferring residence without notifying [SCPL] of his
forwarding address, are clear indications of his intention to renege on his obligation and defraud [SCPL].

For his part, Llorente alleged that he caused the stoppage of the subject drafts' payment because (SCPL's]
personnel and representatives committed fraud and unfair gaming practices during his stay in the casino on
12 July up to 17 July 2000. He also countered that the case should be dismissed on the ground that [SCPL]
lacks the legal capacity to sue since the "isolated tr1nsaction rule" for which it anchored its right to bring
action in our courts presupposes that the transaction subject matter of the complaint must have occurred in
the Philippines, which however, is not the situation at bar since it is clear from the narration that the same
occurred in Australia.

On the other hand, EPCIB, in its Answer, not only alleged [SCPL's] lack of personality to sue before Philippine
courts, but denied also that it unjustifiably and maliciously refused to settle the obligation since it merely
complied with the instructions of Llorente, as payee of the subject drafts, to stop payment thereon. It further
went on saying that [SCPL] had no cause of action against it because there was no privity of contract between
them. EPCIB likewise filed a cross-claim against Llorente since it already reimbursed the lace value of the
subject drafts, pursuant to the demand of the latter. For such reason, it should be relieved of any and all
liabilities under the subject drafts.

Finding that [SCPL] had the legal capacity to sue and seek judicial relief before Philippine courts, the [RTC], on
16 April 2009, rendered a Decision holding both [Llorente and EPCIB] solidarily liable for the value of the
subject drafts. It ruled that when Llorente, as payee of the subject drafts, signed at the back thereof, he is
said to ha[ve] become an indorser who warrants that on due presentment, the instruments would be
accepted or paid or both, as the case may be, according to their tenor, and that if they be dishonored and the
necessary proceedings on dishonor be duly taken, they will pay the amount thereof to the holder. The same
is also true for EPCIB, being the drawer of the subject drafts. It is of no moment if the bank was not a privy to
the transaction for its liability as a drawer is not based on direct transaction but by virtue of the warranties it
made within the purview of the Negotiable Instruments Law. The [RTC] even pointed that [Llorente and
EPCIB] could not seek refuge on the alleged lack of notice of dishonor to them since they were responsible
for the dishonor of the subject drafts aside from the fact that it would be futile to require such notice since it
was EPCIB who countermanded the payment.

The trial court did not also consider Llorente's justification for ordering a stopped payment as it found that it
was done in order to escape liability of paying his obligations with [SCPL]. The decretal portion of [the RTC]
Decision reads as:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [SCPL] and against
both defendants Llorente and [EPCIB], as follows:
1. Ordering defendants Quintin Llorente and Equitable PCI Bank to pay the plaintiff [SCPL], jointly and
severally the amount of the subject bank drafts in the sum of us $300,000[.00];

2. Ordering defendants Quintin Llorente and Equitable PCI Bank to pay the plaintiff [SCPL], jointly and
severally, five (5%) percent of the amount claimed, or US $15,000.00, x x x as and by way of attorney's fees;
and,

3. Costs of suit.

For lack of merit, both defendants Llorente and Equitable PCI Bank's counterclaims as well as defendant
Equitable PCI Bank's cross-claim against defendant Llorente are DENIED.

SO ORDERED."

Aggrieved with the said ruling, both [Llorente and EPCIB] appealed before [the CA]. x x x 7

Ruling of the CA

The CA identified the following 3 issues raised in the appeals filed by Llorente and Equitable PCI
Bank8 (EPCIB): (1) SCPL's personality to sue before Philippine courts under the isolated transaction rule; (2)
SCPL's being a holder in due course; and (3) solidary liability of EPCIB.9

Anent the first issue, the CA held that SCPL has pleaded the required averments in the complaint — it is a
foreign corporation not doing business in the Philippines suing upon a singular and isolated transaction —
which sufficiently clothed it the necessary legal capacity to sue in this jurisdiction. 10 The CA emphasized that
the subject drafts were drawn by EPCIB, which is a Philippine bank, and since the drawer is a bank organized
and existing in the Philippines then naturally a suit on the draft or check it issued can be filed in any of the
places where the check is drawn, issued, delivered or dishonored, which, in this case, can be either the
Philippines where the drafts were drawn and issued, or Australia where the indorsement and dishonor
happened.11

On the second issue, the CA held that, contrary to EPCIB's assertion that the subject drafts were drawn
without any value, the fact that Llorente used them to "buy in" into the Premium Programme of SCPL's casino
which would entitle him to earn 1% cash commission or 0.1%12 rebate on his gaming turn-over is enough to
constitute as the "value" contemplated by the law, making SCPL a holder in due course. 13

On SCPL's good faith in view of Llorente's averment about the impossibility of having no face cards coming
out after seven consecutive deals, the CA found the following explanation in the judicial affidavit of Paul
Arbuckle14 (Arbuckle) sufficient:

x x x The game of Baccarat as played at Star City uses 8 decks of cards by 52 cards in each deck. There are 416
cards in total with 128 cards being denoted as "face" cards including the "ten value card". A single deal of
[B]accarat consists of a minimum of 4 cards to a maximum of 6 cards. If we use 5 cards as an average then
over 6 or 7 deals of Baccarat approximately 35 to 42 cards will be expended. Around 8.4% to a maximum of
10% of the total amount of cards available, I would consider it possible, and in fact, very likely that with such
a small percentage of the total number of cards exposed that no face cards would appear. 15
Also, the CA pointed out that Llorente's conduct — "in spite of the alleged irregularities in the [B]accarat
table, continued to play in said casino x x x [and] he should have · stopped playing and betting because it
would entail huge losses on his part"16 — counteracted whatever truth his claim has.17

Regarding the third issue, the CA deemed it proper to discharge EPCIB from any responsibility considering
that it already paid Llorente the face amount of the subject drafts amounting to US $300,000.00 as evidenced
by the Quitclaim, Indemnity and Confidentiality Agreement18 (Indemnity Agreement) executed on August 8,
2002.19 The CA further reasoned that allowing EPCIB 's solidary liability would sanction unjust enrichment on
Llorente's part who would be allowed to profit or enrich himself inequitably at EPCIB's expense. 20

Thus, the CA in its Decision dated September 30, 2013 ruled that Llorente's appeal was bereft of any merit
while that of EPCIB was partially considered.21 The dispositive portion of the CA Decision states:

WHEREFORE, premises considered, the instant appeal is PARTIALLY GRANTED. The assailed Decision dated
16 April 2009 of the Regional Trial Court is AFFIRMED with the modification that EPCIB is ABSOLVED from
any liability under Civil Case No. 02-1423.

SO ORDERED.22

Llorente filed a motion for reconsideration while SCPL filed a motion for partial reconsideration. The CA
denied both motions in its Resolution23 dated April 10, 2014.

Hence, the instant Rule 45 petitions for review on certiorari in G.R. No. 212050 filed by Llorente and in G.R.
No. 212216 filed by SCPL, respectively. Regarding G.R. No. 212050, SCPL filed its Comment 24 dated September
24, 2014 and Llorente filed his Reply25 dated October 8, 2014. Regarding G.R. No. 212216, EPCIB filed its
Comment26 dated October 4, 2014. Llorente filed an Explanation27 dated August 14, 2015 wherein he
manifested that he deemed it more proper and appropriate to forego the filing of a Comment in G.R. No.
212216 considering the consolidation of the two petitions and the issues and arguments raised therein are
substantially the same and inter-related with one another.28

The Issues

In G.R. No. 212050, Llorente raises the following issues:

1. whether the CA erred in affirming the RTC Decision despite the latter's lack of jurisdiction over the subject
matter of the complaint;

2. whether the CA erred in finding that SCPL has legal capacity to sue under the isolated transaction rule; and

3. whether the designation of the law firm of Jimeno, Jalandoni and Cope (JJC Law) as attorney-in-fact of SCPL
constitutes gross violation of Section 69 of the Corporation Code.29

In G.R. No. 212216, SCPL raises the following issues:

1. whether the CA erred when it modified the RTC Decision by absolving EPCIB of any liability; and

2. whether in absolving EPCIB the CA ignored the express provisions of law and anchored its ratio on
evidence that was not at all proven in trial.30
 The Court's Ruling

G.R. No. 212050

Llorente's Petition lacks any merit.

On the issue of jurisdiction, Llorente argues that except for the mere issuance of the 2 bank drafts by EPCIB,
all the material acts and transactions between him and SCPL transpired in Australia; and, in fact, his front
money account with SCPL was even credited while he was in Australia. 31 Thus, the sole jurisdiction to hear
and decide SCPL's complaint pertains to the Australian Court rather than the Philippine Court. 32

On SCPL's capacity to sue, Llorente argues that the condition sine qua non of the application of the isolated
transaction rule is that the alleged delict or wrongful act must have occurred in the Philippines and the
transaction between him and SCPL was in pursuance of the latter's casino business. 33

Regarding the resignation of JJC Law as SCPL's attorney-in-fact, Llorente argues that it is violative of Section
69 of the Corporation Code because SCPL is not licensed to do business in the Philippines. 34 As such, SCPL's
complaint is a mere scrap of paper and any judgment rendered in connection therewith is a nullity which may
be struck down even on appeal.35

On the capacity of a foreign corporation to sue before Philippine courts, the applicable law is clear.

Under Republic Act No. (RA) 1123236 or the Revised Corporation Code of the Philippines (Revised Corporation
Code), which became effective on February 23, 2019,37 the pertinent provision is Section 150, which states:

SEC. 150. Doing Business Without a License. - No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit
or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.

Section 150 of the Revised Corporation Code is a verbatim reproduction of Section 133 of Batas Pambansa
Blg. (BP) 68 or the Corporation Code of the Philippines (Corporation Code), which provided:

Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit
or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws. (69a)

It must be noted that the Revised Corporation Code repealed the Corporation Code and any law, presidential
decree or issuance, executive order, letter of instruction, administrative order, rule or regulation contrary or
inconsistent with any provision of the Revised Corporation Code is modified or repealed accordingly. 38

While the law (presently the Revised Corporation Code or its predecessor, the Corporation Code) grants to
foreign corporations with Philippine license the right to sue in the Philippines, the Court, however, in a long
line of cases under the regime of the Corporation Code has held that a foreign corporation not engaged in
business in the Philippines may not be denied the right to file an action in the Philippine courts for an isolated
transaction.39 The issue on whether a foreign corporation which does not have license to engage in business
in the Philippines can seek redress in Philippine courts depends on whether it is doing business or it merely
entered into an isolated transaction.40 A foreign corporation that is not doing business in the Philippines must
disclose such fact if it desires to sue in Philippine courts under the "isolated transaction rule" because
without such disclosure, the court may choose to deny it the right to sue. 41

The right and capacity to sue, being, to a great extent, matters of pleading and procedure, depend upon the
sufficiency of the allegations in the complaint. Thus, as to a foreign corporation, the qualifying circumstance
that if it is doing business in the Philippines, it is duly licensed or if it is not, it is suing upon a singular and
isolated transaction, is an essential part of the element of the plaintiffs capacity to sue and must be
affirmatively pleaded.42

These pronouncements equally obtain under the Revised Corporation Code given the reproduction of the
exact wording of Section 133, Corporation Code in Section 150 of the Revised Corporation Code.

Based on the parameters discussed above, the CA has correctly ruled that SCPL has personality to sue before
Philippine courts under the isolated transaction rule, to wit:

x x x [A] foreign corporation needs no license to sue before Philippine courts on an isolated
transaction.43 However, to say merely that a foreign corporation not doing business in the Philippines does
not need a license in order to sue in our courts does not completely resolve the issue. When the allegations
in the complaint have a bearing on the plaintiff’s capacity to sue and merely state that the plaintiff is a
foreign corporation existing under the laws of a country, such averment conjures two alternative possibilities:
either the corporation is engaged in business in the Philippines, or it is not so engaged. In the first, the
corporation must have been duly licensed in order to maintain the suit; in the second, and the transaction
sued upon is singular and isolated, no such license is required. In either case, compliance with the
requirement of license, or the fact that the suing corporation is exempt therefrom, as the case may be,
cannot be inferred from the mere fact that the party suing is a foreign corporation. The qualifying
circumstance being an essential part of the plaintiff’s capacity to sue must be affirmatively pleaded.
Hence, the ultimate fact that a foreign corporation is not doing business in the Philippines must first be
disclosed for it to be allowed to sue in Philippine courts under the isolated transaction rule. Failing in his
requirement, the complaint filed by plaintiff with the trial court, it must be said, fails to show its legal capacity
to sue. 44 x x x

In the case at bar, [SCPL] alleged in its complaint that "it is a foreign corporation which operates its business
at the Star City Casino in Sydney, New South Wales, Australia; that it is not doing business in the Philippines;
and that it is suing upon a singular and isolated transaction". It also appointed Jimeno, Jalandoni and Cope
Law Offices as its attorney-in-fact. Following the pronouncement mentioned above and having pleaded these
averments in the complaint sufficiently clothed [SCPL] the necessary legal capacity to sue before Philippine
courts.45

The appointment of JJC Law as attorney-in-fact of SCPL is irrelevant on the latter's capacity to sue in the
Philippines under an isolated transaction.

Further, the following observation of the RTC is apropos:

Besides, it is observed that defendant Llorente in [his] answer pleaded [an] affirmative relief for damages
from plaintiff [SCPL] by way of a counterclaim. This is contrary to his position that plaintiff has no capacity to
sue in the Philippines because such contention likewise entails that plaintiff may be sued in the Philippines as
defendant Llorente also prayed for affirmative relief against the plaintiff. He is deemed to have admitted the
capacity of plaintiff to be subject of our judicial process. It would be unfair to rule that plaintiff may be sued
in the Philippines without at the same time allowing it to sue on an isolated transaction here. 46
On the issue of jurisdiction, the argument of Llorente that Australian courts have jurisdiction over the case
because all the material acts and transactions between him and SCPL transpired in Australia, except for the
mere issuance of the two bank drafts by EPCIB in the Philippines also fails.

It must be remembered that the complaint filed by SCPL against Llorente and EPCIB is for collection of sum of
money, which is a civil case. Under BP 129, Section 19, RTCs have exclusive jurisdiction "[i]n all other cases in
which the demand, exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses, and
costs or the value of property in controversy exceeds Three hundred thousand pesos (P300,000.00) or, in
such other cases in Metro Manila, where the demand, exclusive of the abovementioned items exceeds Four
hundred thousand pesos (P400,000.00)."47 Since the amount demanded by SCPL against Llorente and EPCIB
in solidary capacity, which is "USD $300,000.00 plus legal interest from date of first demand on December 20,
2000 until full payment,"48 is above P400,000.00, the RTC has jurisdiction over SCPL's complaint.

Also, from the point of view of territorial jurisdiction in criminal cases 49 involving checks, any of the places
where the check is drawn, issued, delivered, or dishonored has jurisdiction. 50 As the CA emphasized, "[w]hile
it is true that the stopped payment occurred in Australia per advice of Union Bank of California to the Bank of
New York, x x x the subject matter of the instant complaint are the subject drafts drawn by EPCIB, which is a
Philippine bank."51

G.R. No. 212216

SCPL's Petition is meritorious.

The CA absolved EPCIB from any liability in this wise:

Relative to EPCIB's solidary liability, We deem it proper to discharge it from any responsibility considering
that it already paid Llorente the face value of the subject drafts amounting to US $300,000.00 as evidenced
by the Quitclaim, Indemnity and Confidentiality Agreement executed on 8 August 2002. It would be very
unfair to hold EPCIB solidarily liable with Llorente because it already paid/refunded to the latter the total
amount of the subject drafts. Moreover, allowing such solidary liability would, indeed, be to sanction unjust
enrichment on the part of Llorente, who will be allowed to profit or enrich himself inequitabl[y] at EPCIB's
expense,52 since he was already paid and yet, the latter, who was without any fault, is still bound to share the
responsibility without any assurance of being paid. Hence, it is only just and equitable to relieve the bank
from any liability to pay considering the execution of the above agreement in favor of Llorente. 53
In its Petition, SCPL posits that it is an established fact that EPCIB issued the subject demand drafts since it
was never denied by EPCIB and was even confirmed by the bank's counsel in a letter dated September 16,
2002 to SCPL's counsel.54

According to SCPL, in issuing the subject demand drafts, EPCIB is considered by law as the drawer and being
the drawer, it represented that on due presentment the checks would be accepted or paid, or both,
according to their tenor and if they be dishonored and the necessary proceedings be taken it would be the
one who would pay pursuant to Section 61 of the Negotiable Instruments Law (NIL). 55

Additionally, SCPL argues that under the NIL, while the maker and the acceptor of the negotiable instrument
are primarily liable, the drawer and endorser are secondarily liable; and the drawer's secondary liability to
pay the amount of the checks arises from its warranties as the drawer. 56 Being a holder in due course, as the
CA has recognized, SCPL may enforce payment of the instrument for its full amount against all parties liable
thereon.57 SCPL concludes that there is no room for the application of equity and unjust enrichment because
the rights, liabilities and representations of the parties are explicitly provided in the NIL and equity, being
invoked only in the absence of law, may supplement the law but it can neither contravene nor supplant it. 58

As to the Indemnity Agreement allegedly executed on August 8, 2002, SCPL further posits that the CA has no
basis to give it weight as it was never presented as evidenc1 e on EPCIB's behalf and was never formally
offered or identified by a proper witness in court.59 Even assuming that the Indemnity Agreement can be used
as evidence, SCPL takes the position that it is only valid between Llorente and EPCIB and cannot be enforced
to defeat SCPL's right as a holder in due course to enforce payment of the instrument for the full amount
thereof against all parties liable thereon.60

In its Comment,61 EPCIB counters that the CA correctly absolved EPCIB from any liability by reason of unjust
enrichment and cites Article 22 of the Civil Code, which provides that every person who through an act or
performance of another, or any other means, acquires or comes into possession of something at the expense
of the latter without just or legal ground, shall return the same to him. 62 EPCIB argues that the unjust
enrichment principle is applicable considering that Llorente already received the value of the subject bank
drafts from EPCIB; and requiring it again to pay the face value of the bank drafts would amount to Llorente's
unjust enrichment to its prejudice.63

As another ground, EPCIB argues that SCPL and EPCIB have no privity of contract as they never transacted
with each other.64 Invoking the basic principle of relativity of contracts, EPCIB states that it would be highly
iniquitous if it is made liable in any way for whatever controversy that arose between SCPL and Llorente. 65

Given the foregoing, EPCIB has apparently abandoned its arguments before the CA that: (1) SCPL is not a
holder in due course because it took the subject bank drafts without any value since the funds corresponding
thereto had been withdrawn by Llorente, and (2) SCPL cannot be considered in good faith because of
Llorente's averment regarding the impossibility of having no face cards coming out of several deals despite a
considerable amount of time.66

The CA has rejected the said arguments and admitted that SCPL is a holder in due course, viz.:

Section 52 of the [NIL] gives the conditions in order to consider [a] person as a holder in due course, to wit:
"SEC. 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the
instrument under the following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue and without notice that it had been previously
dishonored, if such was the fact;

(c) That he took it in good [faith] and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity or defect in the title of [the]
person negotiating it."

As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due
course. One who claims otherwise has the onus probandi to prove that one or more of the conditions
required to constitute a holder in due course are lacking.67 At bar, EPCIB failed to prove that the elements of
good faith and value are wanting.
Anent the element of good faith, [SCPL] showed that Llorente's averment about the impossibility of having no
face cards coming out after seven consecutive deals, is not unusual in view of the small percentage of the
total number of cards exposed [as explained in the] judicial affidavit [of] Paul Arbuckle, Head of Gaming of
Star City Casino x x x [.]

xxxx

It bears to emphasize that Arbuckle had thirty (30) years work experience in the different casinos located in
Australia such that his knowledge and expertise about the different casino games particularly Baccarat,
cannot easily be disregarded and overturned by a simple allegation of cheating which has not been
substantiated in view of the absence of a complaint [by] Llorente to [SCPL's] personnel.

Moreover, Llorente's conduct after he complained about the purported fraud in the casino counteracted
whatever truth his claim has. For this purpose, We acknowledge the [RTC's] disquisition, viz[.]:

xxxx

The [c]ourt finds it quite interesting, and contrary to human behavior, that x x x Llorente, in spite of the
alleged irregularities in the [B]accarat table, continued to play in said casino. If there were indeed
irregularities, as being claimed by x x x Llorente, he should have stopped playing and betting the cause it
would entail huge losses on his part. Considering that the amount of capital involved was very substantial and
considering further that x x x Llorente, as his qualifications show, is admittedly an experienced casino player x
x x, the court finds it hard to believe that, if indeed there were unlawful activities going on in the casino,
specifically in the [B]accarat table, that x x x Llorente would still choose to continue playing, further risking his
money.

xxxx

Contrary to EPCIB's assertion that the subject drafts were taken without any value, We would like to point
out that value "in general terms, may be some right, interest, profit or benefit to the party who makes the
contract or some forbearance, detriment, loan, responsibility, etc. on the other side." 68 Here, it was
established that Llorente used the subject drafts to buy-in into the Premium Programme of [SCPL's] casino
which would entitle him to earn one x x x percent [(1%)] cash commission or [zero point] one x x x percent
[(0.1%)] rebate on his gaming turn-over. This right to play under the Premium Programme is enough to
constitute as a "value" contemplated by the law, thus, making [SCPL] a holder in due course.

Said status of [SCPL] remained despite the withdrawal of the funds because at the time Llorente negotiated
the subject drafts, [SCPL] had no notice that the same had been previously dishonored. In fact, it even
verified the status by calling x x x EPCIB, who advised it through the latter's employee x x x Consuelo
Conigado that the same were issued on clear funds and there [was] no stop payment orders. 69

The Court notes that while Llorente testified that he purportedly reported the fraud or "cheating" incident in
SCPL's casino to the branch office of the Australian Gaming Commission (AGC) at the ground floor of the
casino, he presented no proof, documentary or otherwise, that he in fact did file a complaint; and the RTC
found his account of how he allegedly brought the matter to the AGC "not highly persuasive" noting that
Llorente never mentioned anything about him having reported the incident to the AGC in his Answer, an
information so vital to support his claim of fraud.70

American jurisprudence explains the nature of drafts in this wise:

A draft in the law of bills and notes is a "drawing" and has been defined as an open letter of request from,
and an order by, one person on another to pay a sum of money therein mentioned to a third person on
demand or at a future time specified therein. A draft is a bill of exchange, and the term "draft" is commonly
employed as a synonym for the words "bill of exchange" or "check," although it cannot be the latter if it lacks
the requirements of a check as distinguished from other bills of exchange. Banks are perhaps the greatest
users of drafts, and they sell them to persons who desire to transmit funds. Thus a draft has been defined as
a check drawn by a bank, the only distinguishing feature between a draft and an ordinary check being the
character of the drawer. The instrument which is usually denominated a "bank draft" 71 is in the customary
form of a check and is generally drawn by one bank upon another bank in which it has deposits much the
same as the ordinary depositor draws his check upon his bank. The general rule is that such instrument is a
check and subject to the rules applicable to checks. Since the term check is limited to a demand instrument
and "draft" is not [as it may be payable on demand or at a fixed or determinable future time 72], there is a
distinction between the two in this respect.

In its usual form a draft is a negotiable instrument.73 (Emphasis and underscoring provided)

When the CA recognized SCPL as a holder in due course74 and it did not overturn the finding of the RTC that
the subject demand/bank drafts are negotiable instruments,75 the CA in effect ruled that the two
demand/bank drafts drawn by EPCIB with Llorente as the payee are negotiable instruments. The Court totally
agrees with the RTC's finding, to wit:
A draft is a form of a bill of exchange used mainly in transactions between persons physically remote from
each other. It is an order made by one person, say the buyer of goods, addressed to a person having in his
possession funds of such buyer, ordering the addressee to pay the purchase price to the seller of the goods.
Where the order is made by one bank to another bank, as in this case, it is referred to as a bank draft.
Needless to say, the bank drafts, subject of this case are negotiable instruments and are therefore governed
by the provisions of the Negotiable Instruments Law.76
Both the RTC and CA correctly recognized EPCIB as the drawer of the subject demand/bank drafts. The
liability of the drawer is spelled out in Section 61 of the NIL, which provides:
Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and
his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid,
or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be
duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be
compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting
his own liability to the holder.

When the bank, as the drawer of a negotiable check, signs the instrument its engagement is then as absolute
and express as if it were written on the check;77 and a dual promise is implied from the issuance of a check:
first, that the bank upon which it is drawn will pay the amount thereof; and second, if such bank should fail to
make the payment, the drawer will pay the same to the holder.78

Generally, by drawing a check, the drawer: admits the existence of the payee and his then capacity to
endorse; impliedly represents that he (the payee) has funds or credits available for its payment in the bank in
which it is drawn; engages that if the bill is not paid by the drawee and due proceedings on dishonor are
taken by the holder, he will upon demand pay the amount of the bill together with the damages and
expenses accruing to the holder by reason of the dishonor of the instrument; and, if the drawee refuses to
accept a bill drawn upon him, becomes liable to pay the instrument according to his original undertaking. 79

However, the liability of the drawer is not primary but secondary, particularly after acceptance because it is
conditional upon proper presentment and notice of dishonor, and, in case of a 'foreign bill of exchange,
protest, unless such conditions are excused or dispensed with.80 Thus, under Section 84 of the NIL, when the
instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily
liable thereon accrues to the holder, subject to the provisions of the NIL.

Regarding the effect of countermand or stopping payment, the drawer of a bill, including a draft or check, as
a general rule, may by notice to the drawee prior to acceptance or payment countermand his order and
command the drawee not to pay, in which case the drawee is obliged to refuse to accept or pay. 81 There are
however cases which hold that a draft drawn by one bank upon another and bought and paid for by a
remitter, as the equivalent of money or as an executed sale of credit by the drawer, is not subject to
rescission or countermand so as to avoid the drawer's liability thereon. 82 Moreover, the right to stop payment
cannot be exercised so as to prejudice the rights of holders in due course without rendering the drawer liable
on the instrument to such holders.83Stated differently, stopping payment does not discharge the liability of
the drawer of a check or other bill to the payee or other holder.84 However, where payment has been
stopped by the drawer the relation between the drawer and payee becomes the same as if the instrument
had been dishonored and notice thereof given to the drawer.85 Thus, the drawer's conditional liability is
changed to one free from the condition and his situation is like that of the maker of a promissory note due on
demand; and he is liable on the instrument if he has no sufficient defense. 86

In the instant case, on July 27, 2002 Llorente applied for and executed a Stop Payment Order (SPO) on the
subject demand/bank drafts on the pretext that the said drafts which he issued/negotiated to SCPL allegedly
exceeded the amount he was obliged to pay SCPL87 contrary to his position that SCPL committed fraud and
unfair gaming practices. The execution of the SPO by Llorente did not discharge the liability of EPCIB, the
drawer, to SCPL, the holder of the subject demand/bank drafts. Given that an SPO was issued, the dishonor
and non-payment of the subject demand/bank drafts were to be expected, triggering the immediate right of
recourse of the holder to all parties secondarily liable, including the drawer, pursuant to the NIL. As the RTC
noted: "[Llorente and EPCIB] could not seek refuge on the alleged lack of notice of dishonor to them since
they were responsible for the dishonor of the subject drafts aside from the fact that it would be futile to
require such notice since it was EPCIB who countermanded the payment." 88

The finding of both the RTC and the CA that SCPL is a holder in due course is not even disputed by EPCIB in its
Comment89 dated October 4, 2014 to the SCPL Petition. To recall, EPCIB merely argued that the CA was
correct in absolving it from liability by applying the principle of unjust enrichment. 90 EPCIB added that it had
no privity of contract between SCPL and Llorente.91

Under Section 57 of the NIL, "[a] holder in due course holds the instrument free from any defect in the title of
prior parties, and free from defenses available to prior parties among themselves, and may enforce payment
of the instrument for the full amount thereof against all parties liable thereon." In addition, under Section 51
of the NIL, every holder of a negotiable in instrument may sue thereon in his own name; and payment to him
in due course discharges the instrument.

Having recognized the status of SCPL as a holder in due course and EPCIB as the drawer of the subject
demand/bank drafts, was the CA correct in absolving EPCIB from any liability in view of the Indemnity
Agreement dated August 8, 2002 between Llorente and EPCIB?

In absolving EPCIB from liability, the CA forwarded the following justification:

Relative to EPCIB's solidary liability, We deem it proper to discharge it from any responsibility considering
that it already paid Llorente the face value of the subject drafts amounting to US $300,00[0].00 as evidenced
by the Quitclaim, Indemnity and Confidentiality Agreement executed on 8 August 2002. It would be very
unfair to hold EPCIB the total amount of the subject drafts. Moreover, allowing such solidary liability would,
indeed, be to sanction unjust enrichment on the part of Llorente, who [would] be allowed to profit or enrich
himself inequitabl[y] at EPCIB's expense, since he was already paid and yet, the latter, who was without any
fault, is still bound to share the responsibility without any assurance of being paid. Hence, it is only just and
equitable to relieve the bank from any liability to pay considering the execution of the above agreement in
favor of Llorente.92

The Court finds, and so holds, that the CA erred in discharging EPCIB from its liability as the drawer of the
subject demand/bank drafts.

A review of the records confirms SCPL's argument that the Indemnity Agreement cannot be considered as
evidence because it was not formally offered. In addition, even if it were given some evidentiary weight, it
will nevertheless not bind SCPL pursuant to the principle of relativity of contracts under Article 1311 of the
Civil Code, which provides that "[c]ontracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law."

As to the unjust enrichment principle applied by the CA, the same is not proper. EPCIB's invocation of unjust
enrichment to avoid its liability as the drawer of the subject demand/bank draft evinces bad faith in that
rather than discharging its obligation as the drawer, EPCIB presents the Indemnity Agreement as an
afterthought to shield itself from liability.

Firstly, the liability of EPCIB as the drawer cannot be abrogated by virtue of the Indemnity Agreement
because it arises from the subject demand/bank drafts, which are negotiable instruments, that it issued. Its
secondary liability under Section 61 of the NIL became primary when the payment of the subject
demand/bank drafts had been stopped which had the same effect as if the instruments had been dishonored
and notice thereof was given to the drawer pursuant to Section 84 of the NIL. Given the nature of the liability
of the drawer of a negotiable instrument, EPCIB's argument that it is not liable to SCPL because they have no
privity of contract is utterly without merit.

Secondly, the reimbursement/return by EPCIB to Llorente of the face value of the subject demand/bank
drafts in the total amount ofUS$300,000.00 by virtue of the Indemnity Agreement, assuming this had any
probative value, is subject to the following provision:

4. Claimant ([Llorente)] also agrees to execute and post an indemnity bond in an amount equivalent to
US$300,000.00 in favor of EPCIBank, Star Casino (US$ Drafts Holder/Endorsee), Union Bank of California:
(UBOC), and to any other person or entity who may have been prejudiced by Claimant for whatever damages
that may be suffered by EPCIBank, and other third parties as a consequence of Claimant's SPO [(Stop
Payment Order)] and reimbursement of the amount of US$300,000.00. 93

Thus, if EPCIB is made liable on the subject demand/bank drafts, it has a recourse against the indemnity
bond. To be sure, the posting of the indemnity bond required by EPCIB of Llorente is in effect an admission of
his liability to SCPL and the provision in the Whereas clause that: "On 27 July 2002, Claimant [(Llorente)]
applied for and executed a Stop Payment Order (SPO) on the two drafts, citing as reason that the drafts he
issued/negotiated to Star Casino exceeded the amount he was [obliged] to pay" 94 may be taken against him
to weaken his allegation of fraud and unfair gaming practices against SCPL.

Lastly, for the unjust enrichment principle to apply against SCPL, it should be the party who is benefitted from
the reimbursement or return of the funds by EPCIB. In this case, the party who received the benefit was
Llorente. Any payment to SCPL arising from the subject demand/bank drafts by EPCIB and/or Llorente can
never be by mistake. As provided in Article 2154 of the Civil Code, if something is received when there is no
right to demand it, and it was unduly delivered through mistake, the obligation to return it arises; and, under
Article 2163, here is payment by mistake if something which has never been due or has already been paid is
delivered.

While EPCIB is clearly liable as the drawer of the subject demand/bank drafts, there is no legal basis to make
it solidarily liable with Llorente.

According to Article 1207 of the Civil Code, there is solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity. In this case, there is no contract or
agreement wherein the solidary liability of EPCIB is expressly provided. Under the NIL and the nature of the
liability of the drawer, solidary obligation is also not provided Thus, EPCIB's liability is not solidary but primary
due to the SPO that Llorente issued against the subject demand/bank drafts.

Consequently both Llorente and EPCIB are individually and primarily liable as endorser and drawer of the
subject demand/bank drafts, respectively. Given the nature of their liability, SCPL may proceed to collect the
damages hereinafter awarded simultaneously against both Llorente and EPCIB, or alternatively against either
Llorente or EPCIB, provided that in no event can SCPL recover from both more than the damages awarded.

In the event that SCPL is able to collect from EPCIB based on this judgment, any amount that EPCIB pays to
SCPL can be collected by EPCIB from Llorente by virtue of its cross-claim against Llorente and pursuant to the
indemnity clause of the Indemnity Agreement, which is valid as between Llorente and EPCIB

The monetary awards imposed by the RTC upon Llorente and EPCIB have to be modified pursuant to Lara's
Gifts & Decors, Inc. v. Midtown Industrial Sales, Inc.,95 wherein the majority of the Court en banc revised the
guidelines on interest in Eastern Shipping Lines, Inc. v. Court of Appeals96 and Nacar v. Gallery Frames97 and
the ponente filed a Concurring and Dissenting Opinion. Thus, the payment of the amount of the subject bank
drafts in the sum of US$300,000.00 should bear interest at the legal rate of 12% per annum from the date of
extrajudicial demand, which is August 30, 200298 (as this is the date the extrajudicial demand against EPCIB
that was made subsequent to the extrajudicial demand for payment against Llorente), to June 30, 2013 and
at 6% per annum from July 1, 2013 until full payment and the payment of the attorney's fees equivalent to
5% of the amount of demand or US$15,000.00 should bear interest at the rate of 6% per annum from finality
of this Decision until full payment.

WHEREFORE, the Petition in G.R. No. 212050 is hereby DENIED while the Petition in G.R. No. 212216 is
GRANTED. The Decision dated September 30, 2013 and the Resolution dated April 10, 2014 of the Court of
Appeals in CA-G.R. CV No. 94736 are PARTIALLY REVERSED and SET ASIDE insofar as the Court of Appeals
absolved Equitable PCI Bank from any liability is concerned. The Decision dated April 16, 2009 rendered by
the Regional Trial Court, Branch 134, Makati City in Civil Case No. 02-1423
is REINSTATED with MODIFICATION:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff Star City Pty Limited
and against both defendants Quintin Llorente and Equitable PCI Bank, as follows:

1. Finding both defendants Quintin Llorente and Equitable PCI Bank individually and primarily liable and:

(a) Ordering defendants Quintin Llorente and Equitable PCI Bank to pay the plaintiff Star City Pty Limited the
amount of the subject bank drafts in the sum of US $300,000.00 with interest at 12% per annum from August
30, 2002 to June 30, 2013 and at 6% per annum from July 1, 2013 until full payment;
(b) Ordering defendants Quintin Llorente and Equitable PCI Bank to pay the plaintiff Star City Pty Limited 5%
of the amount claimed, or US $15,000.00, as and by way of attorney's fees with interest at 6% per
annum from the finality of this Decision until full payment; and,

2. Costs of suit.

For lack of merit, both defendants Quintin Llorente's and Equitable PCI Bank's counterclaims are DENIED.
Defendant Equitable PCI Bank's cross-claim against defendant Quintin Llorente is GRANTED.

SO ORDERED.

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.

DECISION

INTING, J.:

A person cannot serve two masters without detriment to one of them.1 It is from this basic human frailty
that the "doctrine of corporate opportunity" was recognized and laws were put in place to deter corporate
officers from using their position of trust and confidence to further private interests.

Before the Court is a Petition for Review on Certiorari2 praying for the reversal of the Decision3 dated June
17, 2011 and the Resolution4 dated January 2, 2012 of the Court of Appeals (CA) in CA-G.R. SP Nos. 103047
and 103119. The CA reversed and set aside the Decision5 dated March 18, 2008 of Branch 158, Regional Trial
Court (RTC), Pasig City in Civil Case No. 68327, and denied the Motion for Reconsideration6 filed by Total
Office Products and Services, Inc. (TOPROS), respectively.

The Antecedents

On November 17, 1998, TOPROS filed before the Securities and Exchange Commission (SEC) a Petition for
Injunction, Mandatory Injunction and Damages (With Urgent Motion for Issuance of Writ of Preliminary
Attachment),7 which was later refiled as an Amended Petition for Accounting and Damages with Prayer for
the Issuance of a Writ of Preliminary Attachment8 (Amended Petition) against TOPGOLD Philippines, Inc.
(TOPGOLD), Golden Exim Trading and Commercial Corporation (Golden Exim), Identic International Corp.
(Identic) (collectively, respondent-corporations), John Charles Chang, Jr. (Chang), Saul Mari Chang, Hector
Katigbak (Hector), Cecilia Katigbak (Cecilia), Rosario Sarah Fernando, and Elizabeth Jay (Elizabeth)
(collectively, individual respondents), who are all incorporators of the respondent-corporations.9

With the passage of Republic Act No. (RA) 8799 or the Securities Regulation Code, which took effect on
August 8, 2000, the Amended Petition was transferred from the SEC to the RTC.10
According to the Amended Petition, Spouses Ramon (Ramon) and Yaona Ang Ty (Yaona) (collectively, Spouses
Ty) wanted to establish a corporation during the latter part of 1982 that would be the sole distributor of
Minolta plain paper copiers in the Philippines. Chang, a former employee of Pantrade, Inc., (Pantrade), a
company also owned by the Ty Family, was given the duty to manage the new corporation. The Ty Family
gave Chang 10% shares in the corporation with the assurance from Chang that he will render competent,
exclusive, and loyal service thereto. On January 31, 1983, TOPROS was incorporated with an authorized
capital stock of P4,000,000.00. Among the incorporators, Chang was the only one who is not a member of the
Ty Family.11

The Ty Family elected Chang as President and General Manager and entrusted to him the management as
well as the funds of TOPROS. Meanwhile Yaona served as Treasurer and Jennifer Ty (Jennifer) stood as
Corporate Secretary. Upon Chang's request, Elizabeth, Hector, and Cecilia, all employees of Pantrade, were
transferred to TOPROS.12

TOPROS grew into a multi-million enterprise; thus, Spouses Ty increased its authorized capital stock to
P10,000,000.00 and Chang's share to 20%. TOFROS included in its line of business the distribution of various
office equipment and supplies utilizing the brand names Ultimax, Maruzen, Taros, and Intimus.13

However, despite its success, no substantial cash dividends were distributed to the stockholders because,
according to Chang, the corporation was investing its funds in several real properties in Metro Manila,
Visayas, and Mindanao.14

In 1998, the Ty Family sensed irregularities in Chang's dealings when their friends and relatives began
questioning the manner in which products and services from TOPROS were issued receipts and vouchers
from TOPGOLD, Golden Exim, and Identic. The Ty Family requested Chang to return all corporate records of
TOPROS. Chang, however, offered to buy them out of their interest at TOPROS. This prompted the Ty Family
to conduct an investigation which revealed that while still a Corporate Director and an officer of TOPROS,
Chang, together with the individual respondents, incorporated the respondent-corporations to siphon the
assets, funds, goodwill, equipment, and resources of TOPROS. According to TOPROS, Chang used its
properties in organizing the respondent-corporations and obtained opportunities properly belonging to it and
its stockholders to their damage and prejudice. Chang was, thereafter, ousted as Corporate Director and
officer of TOPROS; and the instant case was filed against him.15

Meanwhile, TOPROS sought an ex parte issuance of a writ of preliminary attachment against the respondent-
corporations and individual respondents (collectively, respondents) and prayed for: (1) an accounting for all
the profits and the refund of the same to TOPROS; (2) the dissolution of the respondent-corporations; (3) the
declaration as illegal and fraudulent all the transfers and acquisitions made by Chang in his favor and that of
the other respondents; (4) respondents to reconvey to TOPROS the properties which they fraudulently
registered in their individual and corporate names; and (5) payment of damages.16

The SEC issued a Writ of Preliminary Attachment in favor of TOPROS wherein the latter posted a bond in the
amount of P90,000,000.00 representing its alleged damage.17

For his part, Chang denied the charges and asserted that from TOPROS' inception until his ouster as President
and General Manager therein, he alone ran TOPROS and shouldered its liabilities. He further asserted that:
(1) even with the absence of assistance from the Ty Family, they received an estimated P14,000,000.00 cash
dividends spread throughout the 15 years of his incumbency in the corporation; (2) he was able to save
TOPROS from the economic crisis in 1983 through personal loans and surety agreements with Chinabank; (3)
he registered the trade name and logo of the corporation and was able to develop its goodwill all over the
country; (4) he promoted the only Filipino brand of office machine, "Ultimax" and eventually patented it
under the name of TOPROS, even though he was the one who coined its name; and (5) it was during the time
that he was signing as surety for the loans of TOPROS that he, together with the individual respondents,
formed the respondent-corporations.18

Chang furthermore alleged that the Ty Family knew that he organized the three corporations during his
incumbency as President and General Manager of TOPROS. In 1993, Golden Exim and Identic were exhibitors,
together with TOPROS, in the Philippine Office Machine Distributors Association (POMDA), wherein Ramon
was a director while his son, Warren Ty (Warren), was a member of the Exhibit Committee. Golden Exim,
Identic, together with TOPROS, and Pantrade marketed the product "Green-C Chlorella." In the minutes of
the special meeting of Identic in April 1989, Warren signed as a stockholder. Then in April 1989, Warren
acquired the shares of Edwin Tan in Identic through a Deed of Assignment.19

Chang also explained that: (1) from June 1997 to March 1998, he opened several letters of credit for TOPROS
through trust receipt arrangements with Chinabank and before the trust receipts fell due, he took up the
matter of repayment with Spouses Ty; (2) Ramon, however, passed the matter to him and told Chang that if
repayment was not possible, considering that TOPROS was already heavily in debt, Chang should just let the
corporation go bankrupt; (3) he personally guaranteed TOPROS' loans, and, because of his fear of being
charged with estafa, he was compelled to seek other sources to pay off TOPROS' indebtedness; (4) when the
patriarch, Ramon, was no longer interested in rehabilitating TOPROS and Chang wanted to protect his
credibility and the welfare of 200 employees who were about to lose jobs, he took it upon himself to serve
the clients of TOPROS through TOPGOLD which individual respondents incorporated in 1997; and (5) he alone
was able to pay TOPROS' loans including the payment of separation pay of its employees.20

In their Answer Ad Cautelam21 dated September 3, 1999, individual respondents, excluding Chang,
questioned the jurisdiction of the SEC. They alleged that the case is purely intra-corporate between Chang
and TOPROS of which they are not stockholders. They also averred that the SEC has no jurisdiction to order
the dissolution of Golden Exim, Identic, and TOPGOLD as there must be a separate proceeding for such
purpose.22

TOPROS presented, as witnesses, Yaona and Jennifer while respondents presented Chang, Hector, Sheriff
Eduardo Grueso, and Manuel Peralta.23

The RTC Decision

In its Decision24 dated March 18, 2008, the RTC ruled:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff Total Office Products
and Services (Topros), Inc. and against defendants John Charles Chang, Jr., Topgold Phils., Inc., Golden Exim
Trading & [Commercial Corporation] and Identic International Corporation who are hereby ordered, jointly
and solidarily, to:

1. Account for all the profits and properties which otherwise should have accrued to Topros and refund the
same to Topros;

2. Pay actual damages suffered by Topros in an amount to be determined by the Court upon submission by
the Court-appointed Accounting Committee of its Final Report;

3. Pay One Hundred Thousand Pesos (P100,000.00) in exemplary damages to Topros;

4. Pay One Hundred Thousand Pesos (P100,000.00) as and by way of attorney's fees to Topros; [and]

5. Pay the costs of suit.

To carry this judgment into effect, a three-man Accounting Committee is hereby ordered formed with the
Branch of [sic] Clerk of Court, Atty. Romeo Bautista IV, as Chairman, and two other certified public
accountants respectively nominated by the parties, as members.

This Accounting Committee shall undertake the accounting necessary to determine the amount of actual
damages suffered by Topros, the extent of loss of its business opportunities, the extent of gain profited by
Chang and the three defendant corporations to the detriment of Topros, the refund of properties registered
in the name of the three corporations which property pertains to Topros, and such other matters relevant to
the judgment for accounting of all profits and properties properly accruing to Topros. It shall also include in
its review the effects of the previously enforced Writ of Preliminary Attachment.

Accordingly, the parties are hereby directed to submit to the Court, within fifteen (15) days from receipt
hereof, at least two (2) nominees each of certified public accountants from which the Court shall appoint the
other two (2) members of the Accounting Committee.

Meanwhile, let the Petition be dismissed insofar as defendants Saul Mari Chang, Hector Katigbak, Cecilia
Katigbak, Rosario Sarah Fernando and Elizabeth Jay are concerned.

SO ORDERED.25

The RTC held that the case filed by TOPROS is an intra-corporate controversy between TOPROS and Chang.
However, because of allegations of fraudulent utilization and siphoning of resources, opportunities, and
contracts belonging to TOPROS by Chang, together with the individual respondents and the respondent-
corporations, respondents are indispensable parties to the case who must be joined as party defendants.26

The RTC also ruled that Chang violated his fiduciary duties and was guilty of disloyalty to TOPROS for which
he must be held accountable under Sections 31 and 34 of The Corporation Code of the Philippines
(Corporation Code).27 Chang established Identic, Golden Exim, and TOPGOLD which are in the same line of
business of TOPROS while still an officer and director thereof. He acquired business opportunities which
should have belonged to TOPROS.28

Chang and the other respondents filed their separate petitions for review which were consolidated and
resolved by the CA.29

The CA Decision

In its Decision30 dated June 17, 2011, the CA ruled:

WHEREFORE, the Petitions for Review in CA-G.R. SP No. 103047 and in CA-G.R. SP No. 103119 are GRANTED.
The assailed RTC Decision dated 18 March 2011 in Civil Case No. 68327 is REVERSED and SET ASIDE, and
accordingly, the Amended Petition is DISMISSED.

Consequently, the writ of attachment and all notices of garnishment issued relative thereto are hereby
dissolved.
SO ORDERED.31

According to the CA, records do not show that TOPROS even attempted to adduce evidence that Chang and
individual respondents have complete control over TOPGOLD, Golden Exim, and Identic as all TOPROS did
was to show that Chang and the other individual respondents were incorporators and/or officers of the
respondent-corporations and that Chang substantially owned them. It ruled that given that Yaona, Jennifer,
and Warren were the Corporate Treasurer, Secretary, and Chairman, respectively, of the Board of Directors
of TOPROS, it could not see how Chang could have complete dominion over TOPROS' funds. It further held
that TOPROS' mere allegation that Chang and the other individual respondents fraudulently siphoned off its
funds and assets based mainly, if not solely, on the latter's establishment of the respondent-corporations
does not amount to clear and convincing evidence sufficient to support allegations of fraud. Thus, the RTC
had no justifiable reason to pierce the veil of corporate fiction.32

The CA furthermore held that there were only mere innuendos of disloyalty. Ramon, the patriarch of the Ty
Family with whom Chang directly dealt with, was not presented by TOPROS as a witness. Yaona's statements,
which were derived from pronouncements of her husband, Ramon, were mere hearsay and of no probative
value. The RTC's finding that Chang was guilty of disloyalty because of his subsequent acquisition of the
service contract previously entered into by TOPROS and Linde Refrigeration Phils., Inc. (Linde) failed to
consider that during that period, TOPROS was either closing down or had already closed down. This was also
the scenario with regard to the similar advertisements of TOPROS and TOPGOLD considering that TOPROS did
not refute that TOPGOLD started using the advertisements only in 1997.33

TOPROS filed a Motion for Reconsideration, but the CA denied it on January 2, 2012.34

Hence, the petition.

TOPROS is now before the Court asserting that:

I. The [CA] committed grave abuse of discretion amounting to lack or excess of jurisdiction when: it found
petitioner TOPROS['] allegation of disloyalty against respondent Chang lacking; and it did not hold respondent
Chang liable for disloyalty as a director to petitioner TOPROS; and

II. The [CA] committed grave abuse of discretion amounting to lack or excess of jurisdiction when it ruled that
any similarity in the names of petitioner TOPROS and respondent Topgold cannot be considered as indicia of
fraud or of disloyalty in this case.35

Petitioner asserts that: (1) Chang is guilty of violating the Corporation Code particularly Section 31, as he
brazenly disregarded the director's duty of loyalty; (2) he established the respondent-corporations to acquire
and utilize the assets, funds, properties, and resources of TOPROS; and (3) he also violated Section 74 of the
Corporation Code in failing to provide the other directors access to the financial records of TOPROS.36

According to TOPROS, Chang's acts amounted to violation of the "doctrine of corporate opportunity" which
rests 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 calls for protection. If, in such
circumstances the interests of the corporation are betrayed, the corporation may elect to claim all the
benefits of the transaction for itself and the law will impress a trust in favor of the corporation upon the
property interest and profits acquired.37
In his Comment,38 Chang avers that: (1) the doctrine of corporate opportunity does not apply in the case
because he was advised to allow the corporation to go under due to its indebtedness; (2) the doctrine of
corporate opportunity applies only if the corporation is financially able to undertake its business; (3) TOPROS
failed to prove the claim of fraud by preponderance of evidence of fraud; (4) TOPROS' witnesses admitted
that Chang and Ramon had always been in close coordination in handling the affairs of TOPROS, while
members of the family formed part of the new businesses alleged to be part of the scheme to defraud
TOPROS; and (5) when Ramon advised Chang that they were no longer interested to pursue the business and
was willing to just have the business go under, TOPROS' witnesses admitted that Chang was in constant
communication with Ramon.39

Respondent-corporations in their Comment40 also allege that: (1) their incorporations were with the
knowledge, approval, and participation of the Ty Family; (2) there was also no evidence that respondents
were "dummies" of Chang; neither was there evidence, such as account books, vouchers, checks, etc., to
support the allegation that vast amounts of TOPROS's resources were channeled to, and received by the
respondent-corporations; and (3) there is no confusion between the names TOPROS and TOPGOLD.
"TOPGOLD" is merely a descriptive name while "TOPROS" is an acronym that stands for Total Office Products
and Services.41

The Issue

Whether Chang is liable for violation of his fiduciary duties under the Corporation Code.

Batas Pambansa Blg. (BP) 68 or the Corporation Code was enacted in 1980. In 2019, RA 11232, otherwise
known as the "Revised Corporation Code of the Philippines" (RCC), was passed and repealed BP 68.42 As the
acts complained of took place under BP 68, the Court shall refer to the provisions under BP 68.

Our Ruling

The Court finds merit in the petition.

Generally, Rule 45 petitions can raise only questions of law, as this Court is not the proper venue to consider
factual issues. However, a departure from the general rule may be warranted where, as in the case, the
findings of the CA are contrary to those of the trial court.43

Here, the CA had different factual findings from the RTC which necessitates the Court's review of the
evidence presented by the parties. After a judicious review of the documentary and testimonial evidence
presented, the Court finds that a reversal of the CA ruling is warranted.

Doctrine of Corporate Opportunity

The doctrine of corporate opportunity traces its roots to the general principles on directors' and officers'
liabilities.

As a rule, a corporation is a juridical entity that is vested with a legal personality separate and distinct from
those acting in its behalf, and in general, from the people comprising it. Following this principle, obligations
incurred by the corporation, acting through its directors, officers and employees are the corporation's sole
liabilities. A corporate director, trustee, or officer is generally not held personally liable for obligations that
are incurred by the corporation. This legal fiction, however, may be disregarded—through the piercing of the
corporate veil—if, inter alia, it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.44

Section 31 of the Corporation Code (now Section 30 of the RCC) specifies the liabilities of directors, trustees,
or officers. It reads:

Sec. 31. Liability of directors, trustees or officers. — Directors or trustees who willfully and knowingly vote for
or assent to patently unlawful acts of the corporation or 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 in 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 accrued to the corporation. (Italics
supplied.)

Section 34 of the Corporation Code (now Section 33 of the RCC) also states:

Sec. 34. Disloyalty of a director. — 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. (Italics supplied.)

Legislative History

Through Associate Justice Samuel H. Gaerlan, the Court is reminded of and finds it useful to look at the
deliberations of BP 68 or the Corporation Code wherein then Minister Estelito Mendoza highlighted the
intent of introducing Sections 31 to 34 to ensure that directors or corporate officers fulfill their fiduciary
duties to the corporation.

MR. MENDOZA. x x x x

x x x [T]his provision — Section 31 — is really no more than a consequence of the requirement that the
position of membership in the Board of Directors is a position of high responsibility and great trust. Unless a
provision such as this is included, then that requirement of responsibility and trust will not be as meaningful
as it should be. For after all, directors may take the attitude that unless they themselves commit the act, they
would not be liable. But the responsibility of a director is not merely to act properly. The responsibility of a
director is to assure that the Board of Directors, which means his colleagues acting together, does not act in a
manner that is unlawful or to the prejudice of the corporation because of personal or pecuniary interest of
the directors.45 (Emphasis omitted.)

Evidently, the intent of the framers of Section 31 of the Corporation Code was to codify the duty of loyalty of
directors and corporate officers that is to inform and offer to the corporation business opportunities which, by
reason of their office, they acquire or become aware of. Only when the corporation, after having been
offered the business opportunities, and rejects them, that a director can take advantage thereof.
A look at the legislative records would further reveal the intent of the legislators to make a director or
corporate officer liable to account for any profits derived from business opportunities which should have
belonged to the corporation, unless his acts were ratified in accordance with Section 34 of the Corporation
Code.

MR. NUÑEZ. x x x

May I go now to x x x Section 34.

xxxx

My question, Your Honor, is: is this not the so-called corporate opportunity doctrine found in the American
jurisprudence?

MR. MENDOZA. Yes, Mr. Speaker, as I stated many of the changes that have been incorporated in the Code
were drawn from jurisprudence on the matter, but even jurisprudence on several matters or several issues
relating to the Corporation Code are sometimes ambiguous, sometimes controversial. In order, therefore, to
clarify those issues, what was done was to spell out in statutory language the rule that should be applied on
those matters and one of such examples is Section 34.

xxxx

MR. MENDOZA. In my opinion it must not only be made known to the corporation; the corporation must e
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 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. x x x.

x x x [N]ow 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.

xxxx

x x x [A] prudent director, who would assure that he does not become liable under Section 34, should not
only be sure that the corporation has official knowledge, that is, the Board of Directors, but must take steps,
positive steps, which will demonstrate that the matter or opportunity was brought before the corporation for
its decision whether to avail of it or not, and the corporation rejected it.

So, under those circumstances narrated by Your Honor, it is my view that the director will be liable, unless his
acts are ratified later by the vote of stockholders holding at least 2/3 of the outstanding capital stock.

xxxx

The purpose of all these provisions is to assure that directors or corporations constantly — not only
constantly remember but actually are imposed with certain positive obligations that at least would assure
that they will discharge their responsibilities with utmost fidelity.46 (Emphasis and underscoring omitted.)

Philippine Cases on the Doctrine of Corporate Opportunity

In 1979, the Court through Gokongwei v. Securities and Exchange Commission47 (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."48 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."49

In 1992, the Court in Ponce v. Legaspi50 reiterated that it is unfair for a director or any other person
occupying a fiduciary position in the corporate hierarchy from engaging in a venture which competes with
that of the corporation.51

Then in 1993, the Court in Prime White Cement Corp. v. IAC,52 highlighted the duty of loyalty of a director, in
this wise:

A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation.
In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage
and benefit. As corporate managers, 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 hence of the property interests
of the stockholders." In the case of Gokongwei v. Securities and Exchange Commission, this Court quoted with
favor from Pepper v. Litton, thus:

"x x x He cannot by the intervention of a corporate entity violate the ancient precept against serving two
masters x x x He cannot utilize his inside information and his strategic position for his own preferment. He
cannot violate rules of fair play by doing indirectly through the corporation what he could not do directly. He
cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no
matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical
requirements. For that power is at all times subject to the equitable limitation that it may not be exercised
for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of the
cestuis. x x x"53

In 2009, the Court summarized, through Strategic Alliance Development Corp. v. Radstock Securities
Limited,54 the three-fold duty of members of the board of directors: duty of obedience, duty of diligence,
and duty of loyalty. This means that directors: (1) shall direct the affairs of the corporation only in accordance
with the purposes for which it was organized; (2) shall not willfully and knowingly vote for or assent to
patently unlawful acts of the corporation or act in bad faith or with gross negligence in directing the affairs of
the corporation; and (3) shall not acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees.55

The duty of loyalty in particular prohibits corporate directors, trustees, and officers from acquiring or
attempting to acquire any personal or pecuniary interest—or any other interest for that matter—in conflict
with or adverse to their duty as corporate fiduciaries.56

The recent case of Ient v. Tullet Prebon (Philippines), Inc.,57 also discussed the relationship of the doctrine of
corporate opportunity to the duty of loyalty.58

Unfortunately, none of the aforementioned cases have set actual parameters to determine what is
considered as corporate opportunity that gives rise to a claim of damages. There are still no guidelines as to
what factors should be considered by the courts in determining the award of damages under Section 34.
Hence, the need at this time for the Court to fill the gaps of jurisprudence.

United States of America (US) Cases

As raised by Associate Justice Estela M. Perlas-Bernabe, and echoed by Associate Justices Alfredo Benjamin S.
Caguioa and Amy C. Lazaro-Javier, the Court will look at several US cases to guide us in ascertaining the
proper parameters and guideposts that will be useful and appropriate in our jurisdiction.

The corporate opportunity doctrine in US jurisprudence prohibits one who occupies a fiduciary relationship
to a corporation from acquiring, in opposition to the corporation, property in which the latter has an interest
or tangible expectancy or that is essential to its existence. Varying tests, however, have been established by
different State jurisdictions in determining whether such doctrine has been breached.

First, "the line of business test." This test holds that a transaction is a corporate opportunity if it is within the
scope of the corporation's own activities and of present or potential advantage to it. Under this test,
corporate participants must refrain from taking for themselves the types of transactions in which their
corporation normally engages.59

Second, "the interest or expectancy test." This test provides that "an opportunity is open to the director
unless the corporation has an interest already existing [in the opportunity], or x x x it has an expectancy
growing out of an existing right."60 It does not bar directors from every transaction that appears useful to
the corporation in hindsight, but only prevents the acquisition of property that the corporation needs or is
seeking.

Third, "the American Law Institute (ALI) test." This provides that a director or senior executive may not take
advantage of a corporate opportunity, unless: (a) he first offers the corporate opportunity to the corporation
and makes disclosure concerning the corporate opportunity; (b) the corporate opportunity is rejected by the
corporation; and (c) the rejection of the opportunity is fair to the corporation, or authorized by disinterested
directors in a manner that satisfies the standards of the business judgment rule, or authorized or ratified by
disinterested shareholders, and the shareholders' action is not equivalent to a waste of corporate assets. For
this purpose, the ALI test defines a corporate opportunity as: (1) any opportunity to engage in any business
activity of which a director or senior executive becomes aware either in connection with his functions as
director or senior executive or under circumstances that should reasonably lead him to believe that the
person offering the opportunity expects him to offer it to the corporation, or 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 a business activity—which includes the acquisition or use of any contract right or other tangible or
intangible property—of which a senior executive becomes aware, if he knows or reasonably should know
that the activity is closely related to the business in which the corporation is engaged or may reasonably be
expected to engage.61

Common to these three tests is that they all state that "corporate opportunity exists when a proposed
activity is reasonably an incident to the corporation's present or prospective business and is one in which the
corporation has the capacity to engage."62

In the case of Guth v. Loft, Inc.63 (Guth), the Supreme Court of the State of Delaware integrated these tests
and elucidated as to when a corporate opportunity exists, when a corporate director or officer breaches
his/her fiduciary duty to the corporation that he/she serves, and the consequences of such breach. To quote:
Corporate officers and directors are not permitted to use their position of trust and confidence to further
their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and
its stockholders. A public policy, existing through the years, and derived from a profound knowledge of
human characteristics and motives, has established a rule that demands of a corporate officer or director,
peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect
the interests of the corporation committed to his charge, but also to refrain from doing anything that would
work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly
bring to it, or to enable it to make in the reasonable and lawful exercise of its powers. The rule that requires
an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty
and self-interest. The occasions for the determination of honesty, good faith and loyal conduct are many and
varied, and no hard and fast rule can be formulated. The standards of loyalty is measured by no fixed scale.

If an officer or director of a corporation, in violation of his duty as such, acquires gain or advantage for
himself, the law charges the interest so acquired with a trust for the benefit of the corporation, as its
election, while it denies to the betrayer all benefit and profit. The rule, inveterate and uncompromising in its
rigidity, does not rest upon the narrow ground of injury or damage to the corporation resulting from a
betrayal of confidence, but upon a broader foundation of a wise public policy that, for the purpose of
removing all temptation, extinguishes all possibility of profit flowing from a breach of the confidence imposed
by the fiduciary relation. Given the relation between the parties, a certain result follows; and a constructive
trust is the remedial device through which precedence of self is compelled to give way to the stern demands
of loyalty.

The rule, referred to briefly as the rule of corporate opportunity, is merely one of the manifestations of the
general rule that demands of an officer or director the utmost good faith in his relation to the corporation
which he represents.

xxxx

x x x 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. And, if in such
circumstances, the interests of the corporation are betrayed, the corporation may elect to claim all the
benefits of the transaction for itself, and the law will impress a trust in favor of the corporation upon the
property, interests and profits so acquired.64

In the latter case of Broz v. Cellular Information Systems, Inc.65 (Broz), the Guth test on corporate
opportunity was synthesized into four aspects, viz.:

The corporate opportunity doctrine, as delineated by Guth and its progeny, holds that a corporate officer or
director may not take a business opportunity for his own if: (1) the corporation is financially able to exploit
the opportunity; (2) the opportunity is within the corporation's line of business; (3) the corporation has an
interest or expectancy in the opportunity; and (4) by taking the opportunity for his own, the corporate
fiduciary will thereby be placed in a position inimicable to his duties to the corporation. x x x66

As clarified by Broz, however, the Guth test only sets guidelines, and that ultimately, "[n]o one factor is
dispositive and all factors must be taken into account insofar as they are applicable."67 Thus, the
determination of whether or not a corporate director/officer has violated the doctrine "is a factual question
to be decided by reasonable inference from objective facts."68

In addition to these cases, Associate Justice Alfredo Benjamin S. Caguioa raises other tests for the En
Banc's consideration. First is the "fairness" test, under which the test of whether an opportunity is a
corporate one rests on the query of whether a fiduciary's appropriation would fail the "ethical standards of
what is fair and equitable in a particular set of facts."69 It is similar to the line-of-business test in that it may
disallow appropriation of not only existing but prospective opportunities of the corporation. While it
admittedly poses "line-drawing"70 problems with respect to delineating between appropriations that are fair
to the corporation and those that are not, this test allows for malleability in the appreciation of what
constitutes the foundational premise of fairness vis-a-vis corporations, consistent with the inclination of our
legislative history, as pointed out by Associate Justice Samuel H. Gaerlan, that sought to codify the premium
placed on the fiduciary duties of a corporate officer.71

Second is Thorpe v. CERBO, Inc.72 (Thorpe). The case involved a shareholder who sued the company CERBO
and its controlling shareholders who were also its officers and directors for breach of their duty of loyalty
through the usurpation of a corporate opportunity. The officers and directors of CERBO objected to a third-
party proposal because it would erode the control premium of their stocks. The Chancery Court appreciated
the nuanced role of the officers and directors and as controlling shareholders in that while said officers did
breach their duty of loyalty for failing to fully disclose the corporate opportunity, it also noted that as
controlling shareholders, they could veto any transaction that would have constituted a sale of all or
substantially all of the corporation's assets, so that the Court held that while there was a breach of loyalty,
there was effectively no injury to the corporation. Thorpe would therefore be valuable in the appreciation of
whether or not a director or officer of the corporation under fire pursuant to the corporate opportunity
doctrine could not also have validly undertaken the same action in a different corporate capacity.73

Third is the case of Benerofe v. Cha,74 which offers a defense against the corporate opportunity doctrine. The
case involved shareholders who filed a case against their corporation Inorganic Coatings, Inc. (ICI) and its
directors for allegedly entering into a stock purchase agreement that favored another corporation, designees
of which also sat in the ICI's board. The court ruled that the shareholders failed to prove that the board of
directors usurped a corporate opportunity of ICI since it failed to prove that ICI was in fact financially capable
of exploiting the corporate opportunity that was supposedly usurped. The case would therefore be useful in
refining the court's appreciation of the corporate opportunity doctrine, specifically in light of the "incapacity"
defense, or the defense that submits that an opportunity is only a corporate one if the corporation itself
could have, on its own, been able to exploit or seize the same had it not been appropriated by the
fiduciary.75

Finally, another possible defense mentioned by Associate Justice Alfredo Benjamin S. Caguioa is the "source"
defense, which was acknowledged by the ALI and line-of-business tests. The source defense mainly argues
that the opportunity that the fiduciary appropriated was one pertaining to the fiduciary's personal skills and
expertise, and not the corporations.76

Associate Justice Amy C. Lazaro-Javier also shared that it was common law which originally imposed the duty
of a fiduciary upon a director or officer. Slowly, this common law duty has been codified in common law and
hybrid common-civil law jurisdictions, such as ours.77 The content of the fiduciary duty of directors and
officers compels undivided loyalty which should be relentless and supreme. The highest standard of behavior
is demanded which cannot be lowered even by the courts. This fiduciary duty requires directors and officers
to avoid conflicts of interest with the corporation.78
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.79

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.80

Citing the 1995 case of Northeast Harbor Golf Club v. Harris,81 Associate Justice Amy C. Lazaro-Javier
surveyed several tests in determining whether the opportunity belongs or belonged to the corporation.

First are the "line of business," "fairness," and "ALI" tests which were already discussed above. Then, there is
the "combined approach" which combines the "line of business test" with the "fairness" test.

Guided by the ruling in Matic v. Waldner,82 Associate Justice Amy C. Lazaro-Javier then suggests that when
deciding whether a corporate opportunity exists, that a director or officer has availed of and could be held
liable for, all relevant factors must be taken into account, including:

 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 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 the director's pursuit of
the opportunity; and
 Whether the other directors gave their fully informed consent to the director's pursuit of the
opportunity.83

Associate Justice Amy C. Lazaro-Javier explains that the 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 sense of both the statutory provision which states that the opportunity "should belong" to the
corporation84 and the legislative history85 of the provision that an opportunity "may be available" to the
corporation.86

In fine, the above discussion leads to Associate Justice Estela M. Perlas-Bernabe's proposed guidelines which
adopted the Guth ruling that is appropriate in our jurisdiction.

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.

As pointed out by Associate Justice Marvic M.V.F. Leonen, the test laid down in Gokongwei is very much
relevant to the instant case. In Gokongwei, it was held that "the test must be whether the business does in
fact compete."87 It further defined "competition," as "a struggle for advantage between two or more forces,
each possessing, in substantially similar if not identical degree, certain characteristics essential to the
business sought."88 Factors, such as "quantum and place of business, identity of products and area of
competition should be taken into consideration." The Court even pointed out that it is "therefore, necessary
to show that [the director's] business covers a substantial portion of the same markets for similar products to
the extent of not less than 10% of [petitioner] corporation's market for competing products."89

Consequently, it is not enough to impute bare acts of transactions in which the claimant subjectively
perceives the duty of loyalty to be breached. Sufficient evidence must be presented to show that the claim of
damages is indeed premised on a concrete corporate opportunity falling under the parameters above-stated.
Only then may actual damages relative to such lost opportunity be awarded.

Chang's Liability

Here, the Court agrees with the RTC that Chang committed several acts showing personal or pecuniary
interest that were in conflict with his duties as director and officer of TOPROS.

There is no dispute that Chang established Identic in 1989, Golden Exim in 1990, and TOPGOLD in 1998 which
were in the same line of business and while still an officer and director of TOPROS.90 The Articles of
Incorporation of Golden Exim and TOPGOLD show that Chang owned 80% of the shares of Golden Exim; and
Chang, together with his son, owned 99.76% of the shares in TOPGOLD. The General Information Sheet of
Identic also showed that Chang owned 65% of Identic.91

The service report of Linde, which was a client of TOPROS, as well as the provisional receipts issued by
Golden Exim, showed that Golden Exim entered into a service contract with the same client at the same time
that TOPROS was servicing it.92 In 1998, TOPGOLD published printed advertisements which were strikingly
similar to those previously printed by TOPROS in 1997, with the difference that the phrase "now available at
TOPROS" was changed to "now available at TOPGOLD."93

Chang, as President and General Manager of TOPGOLD, signed a deed of assignment with Hector as Service
and Operations Manager of TOPROS which made it appear that TOPROS assigned its rights under several
rental agreements with different entities for the lease of various kinds of office equipment to TOPGOLD. It
also authorized the corresponding rental payments on the rental agreements to be paid to TOPGOLD.94

TOPGOLD uses the same address as TOPROS which not only gives it the opportunity to use TOPROS'
resources but leads the public to believe that they are one and the same entity, if not intimately related to
each other. The Articles of Incorporation of TOPGOLD show its address as 1465 E. Rodriguez, Sr. Ave., Cubao,
Quezon City.95 A printed advertisement of TOPROS shows that it has the same address.96

A 1,445-square-meter parcel of land along E. Rodriguez Avenue, Quezon City, on which TOPROS' building
stands, was registered in the name of Golden Exim in 1993 even though Golden Exim was incorporated only
three years prior to the purchase of the property.97 When it was incorporated in 1990, Golden Exim only had
an authorized capital stock of P2,000,000.00.98

When asked why he gave the investment opportunity to Golden Exim and not to TOPROS, Chang answered
that he had to make his own living.99

The Transcript of Stenographic Notes (TSN) reads:

COURT Why did you not buy the E. Rodriguez property for Topros?

WITNESS

A Because this is Golden Exim Investment, sir.

ATTY. RIVERA

Q- Why did you not give the opportunity to Topros?

That's the question.

A- Well, that's my decision.

Q- So, instead of giving that opportunity to Topros, you decided to [sic] Golden Exim because that is your
decision?

A- Of course, I have to have my own living.

I have to have my own earning and I have to have my own identity. And Golden Exim and Identic are all my
identity.100

For his defense, Chang argued that he did most of the work of TOPROS from its incorporation in 1983 until his
ouster as President and General Manager in 1998 and that he also paid for the loans of TOPROS with
Chinabank in view of his having signed as guarantor or surety for the loans.101

In his Comment, Chang states: (1) that he practically shouldered the burden of running the entire business,
including bearing its liabilities, without any help from the rest of the board of directors and stockholders and
that because of Mr. Ramon Ty's refusal and strict order that Chang sign the surety agreement in his personal
capacity, Chang was convinced and applied for and guaranteed TOPROS' loans in his personal capacity since
1986 until the filing of the present action; (2) that in 1988, he talked to Ramon and expressed his intention of
leaving TOPROS to further his business and establish a name for himself; (3) that Ramon asked him to remain
with TOPROS but encouraged him to organize and establish his own corporations; that he formed Identic,
Golden Exim, and TOPGOLD with the full knowledge, consent and approval of the Ty Family; and (4) that as
proof, he cited the business ventures entered into by the respondent-corporations with TOPROS and the
participation of Warren as incorporator and stockholder of Identic.102
However, the fact that Chang risked his own funds in running TOPROS and paying off its obligations will not
absolve him of his duties as director and officer of TOPROS.

Even if admitted, the circumstances cited by Chang, which suggest of knowledge, tolerance, or even
acquiescence of TOPROS to his establishment of the respondent-corporations which are in the same business
as TOPROS, do not amount to the compliance required of Section 34 to absolve a director of disloyalty. The
law explicitly requires that where a director, by virtue of his office, acquires for himself a business
opportunity which should belong to the corporation, he must account to the latter for all profits by refunding
them, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds
of the outstanding capital stock.

The Court agrees with the RTC that even if the incorporation of the respondent-corporations was with the full
knowledge of the members of the Ty Family, this does not equate to consent to the prejudicial transfer and
acquisition of properties and opportunities of TOPROS which Chang, through his corporations, has shown to
have committed.103

Chang, to show that the incorporation of Golden Exim and Identic was with the full knowledge of the Ty
Family, presented as evidence: (a) the souvenir program of POMDA Exhibit in 1993;104 (b) advertisement
clippings of health product Green-C Chlorella;105 (c) letter indorsement of Ramon promoting Green-C
Chlorella;106 (d) advertisement clippings of TOPROS and Golden Exim and Identic;107 and (e) cover of VAT
Book of Pantrade for 1997 where Golden Exim and Identic were listed as suppliers of Pantrade.108 However,
Chang failed to show that his actions have been ratified by a vote of the stockholders representing at least
two-thirds of the outstanding capital stock of TOPROS.

Chang admitted in open court, viz.:

ATTY. RIVERA

Q Then, of course, you have no document showing that Topros authorized your three (3) corporations to do
that line of a particular business?

A- I have. x x x

xxxx

These are advertisements in which Golden Exim, Identic, Pantrade, Topgold, Topros. You [c]ould see that we
are authorized dealer with the knowledge of Mr. Ramon Ty. You will see everything is here.

xxxx

Q- I'[m] not asking for an advertisement. I'm asking for a specific authority from Topros for you and your
[companies] to engaged [sic] in that line of business which you admitted to be in direct competition with the
business of Topros?

A- These are all with the approval of Mr. Ramon Ty in which, you could [see] that this is part of your exhibits.

Q- So, in other words, aside from those documents you have no other documents to show?
A- I have no other documents but these documents was back in 1991, 1992, 1993, 1994 which we are already
authorized dealer.109

In view of the circumstances, TOPROS was correct in pointing out that the doctrine of "corporate
opportunity" applies in the case.

To determine the exact liability of Chang, however, the instant case should be remanded to the trial court for
the reception of additional evidence and the reevaluation of evidence already submitted, guided by the
parameters aforementioned. That is, TOPROS as claimant bears the burden of proving the specific business
opportunities that gave rise to its claim of damages under Section 34 of the Corporation Code. In turn, Chang
may present evidence to support his claim that: (a) the corporation was already heavily in debt and that
TOPROS' patriarch, Ramon Ty, was no longer interested in corporate rehabilitation, so much so that he was
already letting Chang to allow TOPROS to go bankrupt; and (b) that the corporation had already closed down
prior to respondents' taking of certain corporate opportunities, among others.

Also it should be made clear that the claim for damages under Section 34 of the Corporation Code
necessitates factual determinations which—while it may be arrived at with the aid of an accounting
committee—must be ultimately made by the RTC itself in the exercise of its judicial functions, embodied in a
final judgment.

In closing, it is well to recall that the doctrine of corporate opportunity is not based on theoretical
abstractions, but on human experience that a person 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. An officer of a corporation cannot engage in a business in direct competition
with that of the corporation where he is a director by utilizing information he has received as such officer,
under the established law that a director or officer of a corporation may not enter into a competing
enterprise which cripples or injures the business of the corporation of which he is an officer or director. It is
also established that corporate officers are not permitted to use their position of trust and confidence to
further their private interests. Where two corporations are competitive in a substantial sense, it would seem
improbable, if not impossible, for the director, if he were to discharge effectively his duty, to satisfy his
loyalty to both corporations and place the performance of his corporation duties above his personal
concerns.110

With the guidelines set forth, the courts will now be able to determine in concrete and quantifiable terms,
the liability and accountability of erring directors and officers; thus, finally giving life to the statutory
provisions aimed to curb disloyal acts and punish erring corporate directors and officers.

WHEREFORE, the petition is GRANTED. The Decision dated June 17, 2011 and the Resolution dated January 2,
2012 of the Court of Appeals in CA-G.R. SP Nos. 103047 and 103119 are SET ASIDE. Civil Case No. 68327
is REMANDED to Branch 158, Regional Trial Court, Pasig City for resolution of the case, with dispatch,
following the guidelines set forth in this Decision.

SO ORDERED.