IX.

CORPORATE POWERS AND AUTHORITY

1. Corporate Powers and Capacity

Art. 46, Civil Juridical persons may acquire and possess property of all
kinds, as well as incur obligations and bring civil or criminal actions, in
conformity with the laws and regulations of their organization.

Sec. 36, Corpo enumerates all 10 express powers conferred upon the
corporation by law. These are corporation's capacity or right under its charter
and laws to do certain things. The 11 th enumeration expressly recognizes
those powers which are reasonably necessary to execute the express powers
and to accomplish or carry out the purposes for which the corporation was
formed (implied powers).

Sec. 45, Corpo and except such as are necessaryor incidental to the
exercise of the powers so conferred. (incidental powers of a corporation)

Construction: To determine the powers of corporations, it is well-settled, as in

other cases of legislative grants, that they are to be construed strictly; any
ambiguity in the terms of the corporate charter must operate against the
corporation and in favor of the public.

Important Rulings:

The clear intendment of its Charter is for LBP to be clothed not only with the
express powers granted to it, but also with those implied, incidental and
necessary for the exercise of those express powers. (LBP v. COA, 190 SCRA
154) Kasama sa kapangyarihan ng Landbank ang mag write-off ng
loans, ergo, kasama din sa kapangyarihan nila yung magbaba o mag
waive lang ng penalty charges.

A corporation has only such powers as are expressly granted to it by law and by
its articles of incorporation, those which may be incidental to such conferred
powers, those reasonably necessary to accomplish its purposes and those which
may be incident to its existence. (Pilipinas Loan Company v. SEC, 356 SCRA
193) Kaya nagreklamo si Filipinas Pawnshop kasi si Pilipinas loan ay
binigyan lang ng kapangyarihan na magbigay ng loan hindi mag-
operate as a Pawnshop.

a. Ultra-Vires Doctrine

Sec. 45, Corpo - No corporation under this Code shall possess or exercise any
corporate powers except those conferred by this Code or by its articles of
incorporation
Ultra-Vires acts are those not within the express, implied and incidental power of
a corporation. The general rule is that a corporation must act in the manner and
with the formalities, if any, prescribed by its charter or by the general law.

Important Rulings:

Contracts or acts of a corporation must be made either by the board of directors

or by a corporate agent duly authorized by the boardabsent such valid
delegation/authorization, the rule is that the declaration of an individual
directors relating to the affairs of the corporation, but not in the course of, or
connected with the performance of authorized duties of such director, are held
not binding on the corporation. (Manila Metal Container Corp. v. PNB, 511
SCRA 444). Umutang ng umutang si M.M. sa PNB hanggang din na nya
nabayaran, kaya na-forclose yung mortagage nya. Syempre subject yan
sa right to repurchase, pero gusto ng PNB na 2.6M yung price, tapos
yung isang department ng PNB gust 1.56M, umoo agad si M.M sa offer
ng PNB asset department.

First type of an ultra vires act is one committed outside the object for which
a corporation is crated as defined by the law of its organization and therefore
beyond the power conferred upon it by law. The term ultra vires is
distinguished from an illegal act for the former is merely voidable which may be
enforced by performance, ratification, or estoppel, while the latter is void and
cannot be validated. (Atrium Management Corp. v. Court of Appeals, 353
SCRA 23) May kapangyarihan na gumawa ng check si Atrium. Yun nga
lang nag-sasarangola si Treasurer kaya sa labas parang ultra-vires act
to, pero di naman tlga.

Secon type of ultra-vires - the acts of the corporate officers within the scope of
their authority are binding on the corporation. However, under Article 1910 of
the New Civil Code, acts done by such officers beyond the scope of their
authority cannot bind the corporation unless it has ratified such acts expressly or
tacitly, or is estopped from denying them. . . . Thus, contracts entered into by
corporate officers beyond the scope of authority are unenforceable against the
corporation unless ratified by the Corporation. (Woodchild Holdings, Inc. v.
Roxas Electric Constructions Company, Inc., 436 SCRA 235) Pinagbili ni
President Roxas yung isang lupa ng companya nya. Para mabenta agad
nangako sya na may right of way si Woodchild at kung masikip yug
right of way ibebenta yung ibang part, kaso namatay si Roxas, yung
mga pangako nya pala hilaw, sabi ng Corporasyon di naming binigyan si
mokong ng ganyang authority. Kay ayon.

b. Ratification of Ultra-Vires Act.

 Acts done in excess of corporate officers scope of authority cannot bind the
corporation. However, when subsequently a compromise agreement was on
behalf of the corporation being represented by its President acting pursuant to a
Board of Directors resolution, such constituted as a confirmatory act signifying
ratification of all prior acts of its officers. (National Power Corp. v. Alonzo-
Legasto, 443 SCRA 342) Umoo yung mga official ng NAPOCOR kashit
walang authorization, saka nag-exceed ng authority ng nagdagdag sila
ng blasting works. Dapat tlga di binded si NAPOCOR, kaso yung
compromise na pinasok nila constitute ratification of acts.

2. Express Powers
a. Enumerated Powers (Sec. 36)
b. Extension or Shortening of Corporate Term (Sec.37)

- Must be approved by majority vote of the Board of Directors/ Board of

Trustees.
- Ratified at a meeting by 2/3 of stockholder representing the outstanding
capital stock/ 2/3 of members of non-stock corporations.
- In case of extension of corporate term, appraisal right may be exercised by
the dissenting stockholder

c. Increase and Decrease of Capital Stock (Sec. 38)

- Must be approved by majority vote of the Board of Directors/ Board of

Trustees.
- Ratified at a meeting by 2/3 of stockholder representing the outstanding
capital stock/ 2/3 of members of non-stock corporations.
- Prior approval of SEC with sworn statement by the Corporate Treasurer
showing the 25-25-5000 rule on the increased capital stock was followed.

Important Rulings:

Despite the board resolution approving the increase in capital stock and the
receipt of payment on the future issues of the shares from the increased capital
stock, such funds do not constitute part of the capital stock of the corporation
until approval of the increase by SEC. (Central Textile Mills, Inc. v. NWPC,
260 SCRA368)

A reduction of capital to justify the mass layoff of employees, especially of union

members, amounts to nothing but a premature and plain distribution of
corporate assets to obviate a just sharing to labor of the vast profits obtained by
 its joint efforts with capital through the years, and would constitute unfair labor
practice. (Madrigal & Co. v. Zamora, 151 SCRA 355)

d. Incur, Create or Increase Bonded Indebtedness (Sec. 38)

The property of the corporation is not the property of the stockholders or

members, and as such, may not be sold without express authority from the
board of directors. (Litonjua v. Eternit Corp., 490 SCRA 204)

Sale by Board of Trustees of the only corporate property without compliance with
Sec. 40 of Corporation Code requiring ratification of members representing at
least two-thirds of the membership would make the sale null and void. (Islamic
Directorate v. Court of Appeals, 272 SCRA 454)

e. Declare Dividends (Sec. 43)

- Should be approved by 2/3 of SH representing the outstanding capital

stock at a regular/special meeting called for that purpose;
- Stock corporations- prohibited from retaining surplus profits in excess of
100% of their paid-in capital stock,

The considerations for which shares of stock may be issued are: Cash, Properties
and undistributed profits. Shares of stock are given the special name "stock
dividends" only if they are issued in lieu of undistributed profits. If shares of
stocks are issued in exchange of cash or property then those shares do not fall
under the category sof "stock dividends"Stock dividends may not be issued to
persons who are not stockholders. (Nielson & Co. v. Lepanto Consolidated
Mining Co. 26 SCRA 540)

f. Enter into Management Contracts (Sec. 44)

3. Implied Powers.

A corporation organized to engage as a lending investor cannot engage in

pawbroker. (Philipinas Loan Co. v. SEC, 356 SCRA 193) Yung kanina to.

An officer who is authorized to purchase the stock of another corporation has

implied power to perform all other obligations arising therefrom such as payment
of the shares of stock. (Inter-Asia Investments Industries v. Court of
Appeals, 403 SCRA 452) Nabili si FARMACOR. Sabi ng Presidente 12M
worth sila, yun pala palugi kaya dapat magbalik ng 4M, kaso di binalik
ng seller.

4. Incidental Powers.
 The act of issuing checks is within the ambit of a valid corporate act, for it as for
securing a loan to finance the activities of the corporation, hence, not an ultra
vires act. (Atrium Management Corp. v. CA, 353 SCRA 23). Si
nagsasarangolang Treasurer ulit to.

5. Other Powers.

Important Rulings:

a. Sell Land and Other Properties

When the corporations primary purpose is to market, distribute, export and

import merchandise, the sale of land is not within the actual or apparent
authority of the corporation acting through its officers, much less when acting
through the treasurer. Likewise Articles 1874 and 1878 of Civil Code requires that
when land is sold through an agent, the agents authority must be in writing,
otherwise the sale is void. (Firme v. Bukal Enterprises and Dev. Corp., 414
SCRA 190)

b. Borrow Funds

The power to borrow money is one of those cases where even a special power of
attorney is required under Art 1878 of Civil Code. There is invariably a need of an
enabling act of the corporation to be approved by its Board of Directors. The
argument that the obtaining of loan was in accordance with the ordinary course
of business usages and practices of the corporation is devoid of merit because
the prevailing practice in the corporation was to explicitly authorize an officer to
contract loans in behalf of the corporation. (China Banking Corp. v. Court of
Appeals, 270 SCRA 503)

c. Power to Sue

Under Sec. 36 of Corporation Code, in relation to Sec. 23, where a corporation is

an injured party, its power to sue is lodged with its Board of Directors. A minority
stockholder who is a member of the Board has no such power or authority to sue
on the corporations behalf. (Tam Wing Tak v. Makasiar, 350 SCRA 475)

Where the corporation is real party-in-interest, neither administrator or a project

manager could sign the certificate against forum-shopping without being duly
authorized by resolution of the Board of Directors (Esteban, Jr. v. Vda. de Onorio,
360 SCRA 230 [2001]), nor the General Manager who has no authority to
institute a suit on behalf of the corporation even when the purpose is to protect
corporate assets. (Central Cooperative Exchange Inc. v. Enciso, 162 SCRA
706)
d. Provide Gratuity Pay to Employees

Providing gratuity pay for employees is an express power of a corporation under

the Corporation Code, and cannot be considered to be ultra vires to avoid any
liability arising from the issuance of resolution granting such gratuity pay.
(Lopez Realty v. Fontecha, 247 SCRA 183, 192)

e. Donate
f. Enter into a Joint-Venture

It is illegal for two corporations to enter into a partnership is without merit, for
the true rule is that" though a corporation has no power to enter into a
partnership, it may nevertheless enter into a joint venture with another where
the nature of that venture is in line with the businessauthorized by its charter."
There is nothing in the record to indicate that the venture inwhich plaintiff is
represented by Gregorio Araneta, Inc. as "its managing partner" is not in linewith
the corporate business of either of them. (Tuason & Co. v. Bolanos, 95 Phil.
106)