CORPORATE POWERS CORPORATE LIABILITIES

Corporate Powers exercisable through the Board of Directors Contractual

fall under three classifications:
Corporation is bound by contracts entered into, or authorized to be
entered into by its board.
1.Express
The residence of the corporation is the place where its principal
Powers expressly vested in the corporation by purpose clause of office is established .It can be sued in that place not in the place
its articles of incorporation ,the corporation law and by special where its branch is located (Clavecilla v Antillon)
laws
Principal place of business of the suing corporation ,not the place
of residence of its President, determines venue for suits by the
2.Implied corporation.

Those which can be fairly inferred from the express powers and Jurisdiction under the Civil Procedure, persons eligible to receive
fall under 5 classification to wit: service of summons for a domestic juridical entity are now limited
a.acts in the usual course of business to the
b.acts to protect debts owing to the corporation President
c.embarking in different business Managing Partner
d.acts to aid employees General Manager
e.acts to increase business Corporate Secretary
Treasurer
In-house counsel

3.Incidental
2006 notes: The requirement that the petitioner should sign the
Powers inherent in all corporations as legal entities such as certificate of non-forum shopping applies even to corporations that
perpetual succession. the mandatory directives of the circular and the Rules of Court
make no distinction between natural and juridical persons.

2006 notes: Certification should have been signed by a duly

authorized director or officer of the corp who has knowledge of the
2005 notes: The concession theory is followed in the Philippines in matter being certified.
the creation of the corporations.Under this theory, a group of
persons wanting to create a corporation will have to execute
documents and comply with the requirements set by the state
before the latter gives to the group corporate personality.
-- the grant being a privilege, the state provides for the causes and
reasons by which such privilege may later on be withdrawn by it.

Torts

Corporation is liable for torts committed by its agents or

subordinates in the performance of their duties under the Principle
of its negligence in the selection or supervision of its employees.
3 levels of Control in a Corporation
A principal or master is liable for every tort which he expressly
1.board of directors ,which is responsible for corporate policies directs or authorizes and this is just as true of a corporation as of a
and the general management of the business affairs of the natural persons.
corporation.
2.officers, who in theory execute the policies laid down by the
board, but in practice often have wide latitude in determining the
course of business operations
3.stockholders who have the residual power over fundamental
corporate changes like amendments of the articles of incorporation.

Crimes

Criminal case can only be filed against the officers of a corporation

2005 notes: However, just as a natural person may authorize and not against the corporation itself. It does not follow however
another to do certain acts in his behalf, so may the board of that the corporation cannot be a real party in interest for the
directors of a corporation validly delegate some of its functions to purpose of bringing a civil action for malicious prosecution.
individual officers or agents appointed by it

2005 notes: corporation has no power except those expressly

conferred on it by the corporation code and those that are implied
or incidental to its existence.
ACTS NEEDING STOCKHOLDERS VOTE
a.Vote of Stockholders Holding Majority of Outstanding
Capital Stock
1.fixing of issue value of no par stocks
2.adoption, amendment or repeal of by-laws
(in adoption of bylaws ,no stockholder is involved but if late na
nagawa, then stockholders are involved)
-- by laws is either through the stockholder or delegated to board of
directors (but it must have assent of stockholders holding 2/3 of
subscribed capital stock)
-- to repeal such delegation,it needs the majority of outstanding
capital stock.
3.compensation, other than per diems for directors.
4.entering into management contracts (an additional requirement is
that 2/3 stockholder vote is needed if common shareholder is 1/3
owner managed corporation see #9)
b.Vote of Stockholders Holding 2/3 of Subscribed Capital
Stock(after Absolute Majority vote of directors approved such)
-- the 2/3 includes non-voting shares except in acquiring own
shares, declaring stock dividends,entering management contracts
and revocation of delegation to amend by-laws
--items mentioned needs a qualified notice
1.extension or shortening of corporate term (appraisal right is also
applicable)
2.amendment of articles to increase or decrease capital stock
In decreasing capital stock, it requires amendment of the articles
3.approval of issue shares in exchange for property needed for
corporate purposes or payment of prior debts.
4.sale/disposition of all or sublstantially all of corp assets
(appraisal right is also applicable)
5.investment of fund for purposes different from those stated in the
articles of incorporation
6.investment in another corporation or business (appraisal right is
applicable)
7.stock dividend declaration (no qualified notice)
8.execution of management contracts
9.delegation of board of directors of power to amend the by-laws
or adopt new by-laws
2006 notes: in delegation, there is qualified notice, but in
amendment of by-laws,qualified notice do not exist.
2006 notes:revocation of delegation do not require a qualified
notice.
10.other amendments to the articles of incorporation
11.ratification of certain corporate contracts with a director or
officer
12.ratificaiton of acquisition of business opportunity by a director
or officer
13.approval of merger or consolidation(appraisal right exist)
2006 notes: every amendment or change in plan of merger needs
vote of 2/3
14.removal of directors
15.voluntary dissolution of corporation
16.incurring, creation or increase of bonded indebtedness
Bond--Certificate of indebtedness issued by the corporation for
money borrowed from the public in general.It is used by the
corporation where the corporation needs capital in big amounts but
does not have any desire to increase its capitalization(4blue 95).
Registered Bond , which by nature is registered in the books of
the corporation in the name of the bondholder, can be transferred
but only by assignment It is not negotiable since it is made payable
in the name of a specificed person only.
Coupon Bond is one with detachable coupons bearing dates and
amounts, which on surrender to the corporation on the dates stated,
entitles the holder to receive cash which represents interest on the
bond up to that date. It is payable to bearer and negotiable by
delivery
Detachable Bonds may be sold apart from the bond
Non-Detachable Bond warrant are those which cannot be sold
separately from the bond.
Convertible Bond is one entitling the holder to exchange it with
other types of bonds
Mortgage Bond are secured by a lien or mortgage on specific
property of the corporation
Collateral Trust Bond are secured by pledge of personal property
which may consist of shares of stock, bonds or both which are
deposited with a trustee.
Debenture do not have any specific fund or property as security
for their payment. They rest on credit of the corporation and not on
security. Usual protection is a negative pledge clause against
new mortgages on corporate assets.
Callable/Redeemable Bonds are due and payable at a specific
time but may be redeemed at the pleasure of the issuing entity(but
not obliged to do so until date of maturity)
Equipment Bonds are secured by specific equipment of the issuer
such as its buses,cars,trucks,locomotives and similar properties.
Bond v Shares of stock
Govern by Civil code Corporation code
Since it is a mutuum
Interest is paid Dividends is paid
Interest paid on bond Surplus profit must exist
Whether corp has profit or before payment
non
Interest is fixed dividend depends on profit
Creditor gets his money back stockholder waits for dissolution
On a specific period and after all creditors are paid
No right to participate has right to participate
In management
IN ACQUIRING OWN SHARE, ONLY THE BOARD
ACTION BY MAJORITY VOTE IS NEEDED
--and only when there is unrestricted retained earnings.
if it buys back its own shares, it is not decreasing, since the
corporation is using the unrestricted retained earningshowever,
after you redeem, then you retire it so capital is reduced , however
the reduction is limited so as to protect the right of creditors
--in reissued treasury shares, the stockholders has no right to such
except when it is a close corporations.
SPECIAL CORPORATE POWERS SPECIAL LIMITATIONS ON CORPORATE POWERS

Corporations engage in agriculture are prohibited from having any

1.Eminent Domain (Private Land)
No private corporation may occupy or use property without the
consent of the owners or prior condemnation proceedings and
paying or tendering just compensation.
2.Franchise
interest in any other corporation organized for the purpose of
engaging in agriculture. The same extends to mining corporations
A Philippine corporation not a realty corporation can acquire real
estate only up to the extent that the purpose for which the
corporation may permit and up to the extent that the lawful
business of the corporation may require .It cannot engage in
buying and selling of public lands.

Primary (Gen Franchise)- right to exist, as such it is vested on an

individual who compose the corp and not on the corp itself. Such is
not subject to transfer (sale)
Secondary(Special Franchise)- right granted by the state to use
public property for public use but with a private profit.it is a
right/privilege confirmed on corp (like right to engage in business),
it may be transferred so subject to levy, execution etc..
The special corporate power referred to here is the secondary
franchise. An example is the right to operate a messenger and
delivery service by virtue of a legislative enactment.
CONSTITUTIONAL RIGHTS OF CORPORATIONS
Entitled to immunity against unreasonable searches and seizures.
While an individual may lawfully refuse to answer incriminating
question unless protected by an immunity statute, it does not
follow that a corporation vested with special privileges and
franchises may refuse to show its hands when charged with an
abuse of priviledge.

Corporations are not entitled to all constitutional protections which

private individuals have. They are not within the privilege against
3.Investment in other corporations for purposes other than self incrimination although that privilege runs very closely with the
those stated in articles search and seizure provisions ( Baseco v PCGG)

Corporation may invest its funds in another corporation only if

they can comply with the ff requirements(NCC):

a.investment must be approved by a majority of the board of

directors or trustees

b.invetment must be ratified by the stockholders representing at

least 2/3 of the outstanding capital stock or by at least 2/3 of the
members in case of non stock, in a meeting called for that purpose

c.written notice of the proposed investment and the time and place
of the meeting shall be addressed to each stockholder or member
at his place of residence.

Requisites in order that a corporation may validly sell,lease

,exchange or otherwise dispose of all or substantially all its
assets:

1.sale must be authorized by the board of directors or trustees

2.authorization of the board must be approved by all the
stockholders representing 2/3 of the outstanding capital stock or
2/3 of the members(non stock) as the case may be

3.authorization must be done at a stockholders or members

meeting duly called for the purpose.

2006 notes:any stockholder who dissents shall have appraisal right

to demand payment of the fair value of his shares in case of sale or
other disposition of all or substantially all of the corporate property
and assets

2006 notes:board may sell or dispose without authorization any of

its property or assets if such is necessary in the usual and regular
course of business & proceeds is appropriated for the conduct of its
remaining business in case of its dissolution.(Approval of SH and
right of appraisal is not required in case of ordinary disposition)
ULTRA VIRES ACTS
Acts done by a corporation outside of the express or implied
powers vested in it by its charter and by the law. (Ex: merchandise
corp engaging in buying and selling of real estate)
1.BY THE CORPORATION ITSELF
Settled rules:
1.wholly executory ultra vires contract cannot be enforced
2.wholly executed ultra vires contract on both sides will not be set
aside nor interfered with by the courts
3.in ultra vires contracts executed by one party but executory on
the other, recovery may be had under the principle of unjust
enrichment.
2005 notes: contracts ultra vires entered into by board of directors
are binding upon the corporation and courts will not interfere
unless such contracts are so oppressive and unconscionable as to
amount to a wanton destruction of the rights of the minority.
An Ultra Vires act may be differentiated from illegal act in the
ff manner:
1.ultra vires is an act not necessary unlawful but outside the
purposes and authority of the corporation to perform
Illegal act is an act which goes against the law,morals, public
policy and public order and therefore unlawful for the corporate to
perform
2.ultra Vires Acts may be ratified, an illegal act cannot
3.unlta vires act ,if fully or partly executed ,can bind the parties to
ti, an illegal act can never be binding.
2.BY CORPORATE OFFICERS
A corporate officer entrusted with the general management and
control of its business has implied authority to make any contract
or do any other act which is necessary to the conduct of the
ordinary business of the corporation.
-- he may without special authority from the board of directors
perform all acts of an ordinary nature which by usage or necessity
are incident to his office and may bind the corporation by contracts
in matters arisng in the usual course of business.
Ratification can be made by the corporate board either expressly(it
hold out agent to public as possessing power to do those acts) or
impliedly.
Implied ratificationi may take various forms (like silence or
acquiescence, by acts showing approval or adoption of contract or
by acceptance or retention of benefits)
(BAR) X,a domestic corp, owns and operates a sugar central. In
1965,President invested P1M of company funds in shares of A, a
domestic corporation engage in the manufacture of sugar bags out
of bagasse as basic raw materials. X became the biggest consumer
of the bags produced by A. In 1967, A shut down its operation due
to high cost of production and huge losses already suffered.
Stockholder B of X Corp assailed the investment as violative of
Corporation law.
Board of Directors of X then met and ratified the investment made
by the President.
HELD: Effect of such ratification by the board of the act of the
President investing the funds of the corporation did not operate to
validate the Presidents act.
the investment of funds of a corporation in the equity of
another corporation is an extraordinary corporate power
which can be exercised by its board of directors only on
authority from stockholders holding atleast 2/3 of the
outstanding capital stock of the corporation, the
decision being made in a regular or special meeting of
said stockholders.
Claim of B is not valid since corporations are expressly
authorized by New Corporation Code (NCC) to invest
in equity of other corporations. However, before either
boards can do so, they should be authorized by
stockholders holding at least 2/3 of the outstanding
capital stock. This authority for the stockholders is what
is missing in the problem
Effect when no Ratification (under the 1898 Civil code)
Acts of agent beyond the scope of authority do not bind the
principal unless the latter ratifies the same expressly or impliedly.
It also bears emphasizing that when third persons knows that agent
was acting beyond his authority, the prinicipal cannot be held
liable for the acts of the agent . If said third person is aware of
such ,he is to blame and is not entitled to recover damages from the
agent unless the latter undertook to secure the principals
ratification.
CONFLICT OF INTEREST
Section 32. A contract between a corporation and (one of its
directors or trustees or) its officers is voidable at the option of
such corporation, unless all the following (4) conditions are
satisfied/ present:
1.That the presence of such director or trustee in the board meeting
in which the contract was approved was not necessary to constitute
a quorum for such meeting;
2.That the vote of such director or trustee was nor necessary for the
approval of the contract;
3.That the contract is fair and reasonable under the circumstances;
and
4.That in case of an officer, the contract has been previously
authorized by the board of directors.
Where any of the first two conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or
trustee, such contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds (2/3) of the
members in a meeting called for the purpose:
Provided, That full disclosure of the adverse interest of the
directors or trustees involved is made at such meeting: Provided,
however, That the contract is fair and reasonable under the
circumstances.
Now, if the presence of that director is needed to have a quorum or
to approve the contract, to validate the contract, it should be
ratified by the stockholders. You would need the 2/3 vote of the
stockholders to ratify the contract. When the stockholders are
asked to ratify the contract, there must be full disclosure. In other
words, you must tell the stockholders that theres this contract, one
of our directors wants to buy this parcel of land and these are the
terms and conditions.
2006 notes: Teleconferencing as a general rule is not allowed in
corporation code but in SEC issued memo, this is allowed only
with regard board of directors meeting but not in a stockholders
meeting since a stockholder is allowed a proxy)
-- those entering into teleconferencing ,the secretary of the
corporation must specify the type of device used, that
the director & secretary can clearly comprehend the
event occurring and he receives the documents in the
meetings and the secretary must state that a quorum
was attained and lastly that all directors must sign in the
minutes of the meeting.
1.(BAR) L is the chairman and President while R is a director of
NT Corp. On one occasion, NT represented by L and A Enterprise,
a single proprietorship owned by R entered into a dealership
agreement whereby NT appointed A Enterprise as exclusive
distributor of its products in Northern Luzon.
HELD: Dealership agreement is voidable at option of NT
inasmuch as the facts do not indicate that the same was approved
by the Board of NT before it was signed or assuming such
approval that it was approved under the ff conditions:
a.presence of R, the owner of A, in the meeting of the Board at
which the agreement was approved was not necessary to constitute
a quorum for such meeting
b.vote of R was not necessary for the approval of the agreement
c.agreement is fair and reasonable under the circumstances (NCC)
2006 notes: As such, kung walang approval ng board, hindi valid
ang transaction in isang individual or president or chairman.
2006 notes: NCC provides that a corporation may conclude a
management contract with another corporation for a period not
exceeding 5 years, which contract should be approved by the board
of both corporations
-- and by the stockholders holding a majority of the outstanding
capital stock or by majority of member of both. The majority
requirement is increased to 2/3 in case of interlocking directors or
ownership by same person of at least 1/3 of the stock in both
corporations.
2.(BAR) C is a director of both P and K Corporations.He owns 1%
of the outstanding capital stock of P and 40% of K. P plans to enter
into contract with K that will make both companies earn very
substantial profits. The contract is presented at the respective board
meetings of P and K.. In order the contract will not be voidable,
what conditions will have to be complied with?
HELD:At meeting of Board of Directors of P to approve the
contract, C would have to make sure that:
1.his presence as director at the meeting is not necessary to
constitute a quorum for such meeting
2.his vote is not necessary for the approval of the contract
3.contract is fair and reasonable under the circumstances
At the meeting of Board of K, C would have to make sure that:
1.no fraud involved
2.contract is fair and reasonable under the circumstances
4Blue 95 notes: If conditions relating to quorum and required
number of votes not met. Contract must be ratified by the vote of
stockholders representing at least 2/3 of the outstanding capital
stock in a meeting called for the purpose. Furthermore, the adverse
interest of C in the contract must be disclosed and the contract is
fair and reasonable