Professional Documents
Culture Documents
4. Incidental Powers
5. Other Powers
Section 36. Corporate powers and capacity. - Every corporation incorporated under this Code
has the power and capacity:
2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal
the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks
to subscribers and to sell treasury stocks in accordance with the provisions of this Code;
and to admit members to the corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by law and the
Constitution;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any political party or candidate or for
purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary to carry out its
purpose or purposes as stated in the articles of incorporation. (13a)
- Art. 1874 and 1878 of the NCC: requires that when land is sold through an agent, the
agent’s authority must be in writing, otherwise the sale is void
b. Borrow Funds
- This power needs a Special Power of Attorney for it to be exercised validly pursuant to
Art. 1878 of the NCC
FLAMENOTES—CORP LAW 1
- There is an invariable need of an enabling act of the corporation to be approved by its
Board of Directors
- As a creature of the law, the powers and attributes of a corporation are those set out,
expressly or impliedly, in the law
- Where a corporation is an injured party, its power to sue is lodged with its BoD
- A minority stockholder, who is a member of the BoD has NO power or authority to sue
on the corporation’s behalf
- Where the power to sue is delegated by the by-laws to a particular officer, such
officer MAY APPOINT counsel to represent the corporation WITHOUT NEED of
a formal board resolution
- An officer or agent who has general control and management of the corporation’s
business or a specific part thereof, MAY BIND the corporation by employment of such
agents and employees as are USUAL and NECESSARY in the conduct of such
business
- Sec. 36 (10) of Corp Code: “x x x To establish pension, retirement, and other plans
for the benefit of its directors, trustees, officers and employees;”
f. To Make Donations
- Sec. 36(9) of Corp Code: “x x x make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided,
That no corporation, domestic or foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;”
Main Inquiry: Whether two or more medium-size corporations (contactors) may enter into a
partnership or joint-venture/consortium for the purpose of qualifying in terms of capitalization
and equipment in large-scale projects of the Ministry of Public Highways through competitive
bidding
Opinion:
FLAMENOTES—CORP LAW 3
o In a partnership, each member binds the firm when acting within the
scope of the partnership
- Requisites to apply the exception:
o The articles of incorporation of the corporation must expressly
authorize the corporation to enter into contracts of partnership with
others in the pursuit of its business
o The agreement or articles of partnership must provide that all partners
will manage the partnership
o The articles of partnership must stipulate that all the partners are and
shall be jointly and severally liable for all the obligations of the
partnership
- Two or more corporation may enter into a JOINT
VENTURE/CONSORTIUM if the nature of the venture is IN LINE WITH
THE BUSINESS authorized by its charter through a contract or
voluntary agreement between the said parties
- NOTE:
o No legal independent entity is borne out of this event
o This need not be registered with the SEC
o HOWEVER, when the JV/consortium results in the formation of a
corporation or partnership, the same has to be registered with the
Commission
Main Inquiry: Whether First Orient Development and Construction Corp (FODCC) may legally
enter into a JVA with another company having a similar purpose in connection with its
application to pre-qualify and bid for various Philippine National Oil Company (PNOC) Hybrid
Projects
Opinion:
Tuason v Bolanos
Facts:
- This case involves a complaint for recovery of land. Plaintiff in this case had
his complaint amended 3 times because of circumstances wherein he
needed to change the description of the lands in question after surveys
- Defendant sets up prescription and titles in himself. Defendant argues that he
has been in peaceful and continuous possession of the land since time
immemorial
- Lower court rendered judgment in favor of plaintiff
Issue: Whether the trial court erred in not dismissing the case on the ground that the
case was not brought by the real party in interest-- No
Held:
- The argument that the present action is not brought by the real party in
interest (JM Tuason & Co.) is untenable
- The Rules of Court require than an action be brought in the name of,
BUT NOT NECESSARILY BY, the real party in interest
- The practice is for an attorney-at-law to bring the action, that is to file the
complaint, in the name of the plaintiff
- In the case at bar..
The complaint is signed by the law firm of Araneta and Araneta
“counsel for the plaintiff” through its undersigned counsel
While it is true that the complaint also states that the plaintiff is
represented by its managing partner Gregorio Araneta, Inc.,
another corporation, but there is nothing against one corporation
being represented by another person, natural or juridical, in a suit
in court
The contention that Gregorio Araneta, Inc. cannot act as
managing partner for the plaintiff on the theory that it is
illegal for two corporations to enter into a partnership is
WITHOUT MERIT
TRUE RULE: 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 business authorized by its charter
FLAMENOTES—CORP LAW 5
Section 45. Ultra vires acts of corporations. - No corporation under this Code shall
possess or exercise any corporate powers except those conferred by this Code or by its
articles of incorporation and except such as are necessary or incidental to the exercise
of the powers so conferred. (n)
Pirovano v De la Rama
Facts:
Enrico Pirovano, president of the defendant company, managed the company until it
grew and flourished to become a multi-million company
Enrico was executed by the Japanese during the occupation
The BOD issued a resolution stating:
Out of the proceeds of the life insurance policies availed by Enrico, the sum
P400,000 will be set aside for equal division among the 4 children, convertible
into shares of stock of the De la Rama Steamship Company, at par and, for that
purpose, that the present registered stockholders of the corporation be requested
to waive their preemptive right to 4,000 shares of the unissued stock of the
company in order to enable the children to obtain 1000 shares at par
If the Pirovano children were allowed to be given their shares of stock, the voting
strength of the 5 daughters of Don Esteban would be adversely affected. Mrs. Pirovano
would have a voting power twice that of her sisters
Lourdes de la Rama wrote the Secretary of the corporation, Atty. Lichuaco, asking him
to cancel the waiver of the pre-emptive rights
The company amended the resolution turning it into a loan with 5% interest payable
when the obligation can be met
The company revoked its donation of the life premium proceeds since it is not in
compliance with the SEC
The minor children of Enrico, represented by their mother, demanded the payment of the
credit due them amounting to P564k
RTC held that the contract or donation was not ultra vires
Issue: Whether the corporation’s donation of the proceeds of insurance policies is an ultra vires
act—No, the act was valid and binding
Held:
Section 23. The board of directors or trustees. - Unless otherwise provided in this Code,
the corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders of stocks, or where
there is no stock, from among the members of the corporation, who shall hold office for
one (1) year until their successors are elected and qualified. (28a)
Every director must own at least one (1) share of the capital stock of the corporation of
which he is a director, which share shall stand in his name on the books of the
corporation. Any director who ceases to be the owner of at least one (1) share of the
capital stock of the corporation of which he is a director shall thereby cease to be a
director. Trustees of non-stock corporations must be members thereof. A majority of the
directors or trustees of all corporations organized under this Code must be residents of
the Philippines.
FLAMENOTES—CORP LAW 7
University of Mindanao v. BSP
Facts:
Guillermo Torres and Dolores Torres incorporated and operated 2 thrifts banks: First Iligan Savings &
Loan Association Inc. (FISLAI) and Davao Savings and Loan Association Inc. (DSLAI)
Guillermo chaired both thrift banks. He acted as FSLAI’s President, while his wife, Dolores, acted as
DSLAI’s treasurer
Upon Guillermo’s request, BSP issued a P1.9M standby emergency credit to FSLAI
1982—University of Mindanao’s VP of Finance, Petalcorin, executed a deed of real estate mortgage
over University of Mindanao’s property in CDO in favor of BSP
o The mortgage served as security for FISLAI’s P.19M loan
o It was allegedly executed on University of Mindanao’s behalf. As proof of his authority to
execute a real estate mortgage for UM, Petalcorin showed a Secretary’s Certificate signed by
UM’s Corporate Secretary Aurora de Leon
The certificate states among others the authorizing of the chairman to appoint Petalcorin
to represent the UM to transact, transfer, convey, lease, mortgage, or otherwise
hypothecate the subject properties
Petalcorin then executed another deed of real estate mortgage, allegedly on behalf of UM, over its
properties in Iligan City
o This mortgage served as an additional security for FISLAI’s loans
FISLAI and DSLAI merged with the latter becoming the surviving corporation in an effort to rehabilitate
the thrift banks due to heavy withdrawals of depositors
DSLAI later became known as the Mindanao Savings and Loan Association Inc.(MSLAI)
MSLAI failed to recover from its losses. Hence, BSP foreclosed the mortgaged properties
UM filed 2 complaints for nullification and cancellation of mortgage
o 1 complain was filed before the RTC of Iligan City and the other in CDO
UM alleged that it did not obtain any loan from BSP and that Aurora De Leon’s certification was
anomalous
o UM also alleged that it never authorized Petalcorin to execute a real estate mortgage involving
its properties to secure FISLAI’s debts and it never ratified the execution of the mortgage
contracts
The RTC ruled in favor of UM
The CA reversed
o CA held that “although the BSP failed to prove that the UM Board of Trustees actually passed a
Board Resolution authorizing Petalcorin to mortgage the subject real properties, Aurora De
Leon’s Secretary’s Certificate clothed Petalcorin with apparent and ostensible authority to
execute the mortgage deed on its behalf
o BSP merely relied in good faith on the Secretary’s Certificate. UM is estopped from denying
Petalcorin’s authority
Issue: Whether petitioner UM is bound by the real estate mortgage contracts executed by Petalcorin—No
Held:
Acts of an officer that are not authorized by the BOD/trustees do not bind the corporation
unless the corporation ratifies the acts or holds the officer out as a person with authority to
transact on its behalf
Petitioner’s argument:
o UM did not authorize Petalcorin to mortgage its properties on its behalf. That there was no
board resolution to that effect.
o The mortgage contracts in favor of respondent do not bind etitioner
o The contracts were executed without authority of UM
o Being a juridical person, petitioner cannot conduct its business, make decisions, or act in any
manner without action from its board of trustees
Board of trustees must act as a body in order to exercise corporate powers
o Individual trustees are not clothed with corporate powers just by being a trustee
o HENCE, the individual trustee cannot bind the corporation by himself or herself
o The corporation may however DELEGATE through a board resolution its corporate
powers or functions to a representative, subject to limitations under the law and the
corporation’s articles of incorporation
The relationship between a corporation and its representatives is governed by the general
principles of AGENCY
o Art. 1317 No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him
Hence, without delegation by the board of directors or trustees, acts of a person- including those of
the corporation’s directors, trustees, shareholders, or officers—executed on behalf of the
corporation are generally NOT binding on the corporation
The unenforceable status of contracts entered into by an unauthorized person is based on the principle
that contracts must be consented to by both parties
o There is no contract without meeting of the minds as to the subject matter and cause of
the obligations created under the contract
o Consent of a person CANNOT be presumed from representations of another, especially if
obligations will be incurred as a result
o Contracts entered into by persons without authority from the corporation shall generally
be considered ULTRA VIRES and UNENFORCEABLE against the corporation
Other Notes:
o Corporations are artificial entities granted legal personalities upon their creation by their
incorporators in accordance with law
o They have NO inherent powers
o Third persons dealing with corporations cannot assume that corporations have powers.
It is up to those persons dealing with corporations to determine their competence as
expressly defined by the law and their articles of incorporation
o A corporation may exercise its powers ONLY WITHIN those definitions
corporate acts that are outside those express definitions under the law or AOI or those
committed outside the object for which a corporation is created are ULTRA VIRES
EXCEPTION:
When acts are necessary and incidental to carry out a corporation’s
purposes, and to the exercise of powers conferred by the Corporation
Code and under a corporation’s articles of incorporation
o Montelibano: case that stated the test to determine if a corporate act is in accordance with its
purposes
LOGICAL RELATION of the act to the corporate purpose expressed in its charter
If that act is one which is lawful in itself, and not otherwise prohibited, is done for serving
corporate ends, and is reasonably tributary to the promotion of those ends, in a
substantial, and not in a remote and fanciful sense, it may fairly be considered within
charter powers
The test to be applied is whether the act in question is in direct and immediate
furtherance of the corporation’s business, fairly incident to the express powers
and reasonably necessary to their exercise
o In the case at bar…
UM being an educational institution DOES NOT have the power to mortgage its
properties to secure loans of other persons
An educational institution is limited to developing human capital through formal
instruction
It is not a corporation engaged in the business of securing loans of others
Securing FISLAI’s loans by mortgaging petitioner’s properties DOES NOT appear to
FLAMENOTES—CORP LAW 9
have even the remotest connection to the operations of petition as an educational
institution
Securing loans is not an adjunct of the education institution’s conduct of business
It does not appear that securing third-party loans was necessary to maintain
petitioner’s business of providing instruction to in individuals
o Acquiring shares in another corporation is NOT a means to create new powers for the
acquiring corporation
Being a shareholder of another corporation does not automatically change the
nature and purpose of a corporation’s business
Appropriate AMENDMENTS must be made either to the law or the AOI before a
corporation can validly exercise powers outside those provided in law ot the AOI
WITHOUT AN AMENDMENT, WHAT IS ULTRA VIRES BEFORE A CORPORATION
ACQUIRES SHARES IN OTHER CORPORATIONS IS STILL ULTRA VIRES AFTER
SUCH ACQUISITION
o In the case at bar…
Regardless of the number of shares that petitioner had with FISLAI, DSLAI, MSLAI,
securing loans of third persons is still beyond petitioner’s power to do. It is still
inconsistent with its purposes under the law and its AOI
Petitioner’s key officers, as shareholders of FISLAI, may have an interest in ensuring the
viability of FISLAI by obtaining a loan from respondent and securing it by whatever
means
HOWEVER, having interlocking officers and stockholders with FISLAI does not
mean that petitioner, as an educational institution, is or must necessarily be
interested in the affairs of FISLAI
Facts:
Benguet Consolidated Mining was organized in June 1903 as a sociedad anonima in conformity with
Spanish Law. Balatoc Mining Co. was organized in December 1925 as a corporation in conformity with
Act. 1459 (Corporation Law)
o Harden et al are stockholders of Balatoc Mining
When Balatoc Mining was first organized, the properties it acquired were largely underdeveloped and
the original stockholders were unable to supply the means needed for profitable operations
In order to address such problem, the company’s stockholders appointed a committee for the purpose
of interesting outside capital in the mine
By the authority of a resolution of the board of directors, the committee approached A.W. Beam,
president and general manager of Benguet Company, in order to secure capital necessary to the
development of the Balatoc Company
A contract was signed between 2 companies which provide that BENGUET was to proceed with the
development of the BALATOC property and in return BENGUET company would receive from
BALATOC shares of par value of P600,000 in payment for the first P600,000 be thus advanced to it by
BENGUET
The total cost incurred by BENGUET in developing the property was P1.4M. In light of this, a certificate
for P600K shares of stock of BALATOC was given to BENGUET and the excess par value was paid to
BENGUET by BALATOC in cash
Due to the improvement made on the company’s property, the value of the shares of BALATOC
increased in the market (from P1.00 to P11.00) and the dividends of the company enriched its
stockholders
As soon as the success of the company became apparent, Harden (owner of thousands of shares of
BALATOC) questioned the transfer of 600,000 shares to BENGUET. Harden seeks to annul the
certificate covering the 600,000 shares of stock transferred to BENGUET
Harden’s argument: it is unlawful for BENGUET to hold any interest in a mining corporation because in
the former Corporation Law, there is a provision referring to mining corporations: “it shall be unlawful for
any member of a corporation engaged in agriculture or mining and for any corporation organized for
any purpose except irrigation to be in any wise interested in any other corporation engaged in
agriculture or in mining”
1.) Whether Harden et al can maintain an action based upon the violation of law supposedly committed by
BENGUET—No
BENGUET did not commit any civil wrong against the plaintiffs, and if a public wrong has been
committed, the directors of the BALATOC Company and Harden himself were the active inducers of the
commission of that wrong
The contract was performed on both sides
o By building of the BALATOC plant by BENGUET and the delivery to the latter of the certificate
of 600,000 shares of BALATOC
The penalties imposed on what is now Sec. 190(A) of the Corporation Law for the violation of the
prohibition in question are of such nature that they cant be enforced only by a criminal prosecution or
by any action of quo warranto. However, these proceedings can be maintained only by the Attorney
General in representation of the government
2.) If BENGUET committed a violation, whether BENGUET (a sociedad anonima) is a corporation within the
meaning of the language used by US Congress and later by Philippine Congress, prohibiting mining
corporation from becoming interested in another mining corporation
Since the plaintiffs have no right of action against Benguet Company, the Court refused to go further
into the question as to whether a sociedad anonima, created under Spanish Law (BENGUET) is a
corporation within the prohibitory provision
Sociedad Anonima—like the English joint stock company with features those of a partnership
o Sec 75 of the Corp Law, a provision is found making the sociedad anonima subject to the
provisions of the Corp Law “so far as such provisions may be applicable” and giving to the
sociedades anonimas previously created in the islands the option to continue business as such
or to reform and organize under the provisions of the Corp Law
o Purpose in Repealing: to compel commercial entities thereafter organized to incorporate under
the Corp Law, unless they should prefer to adopt some form or other of the partnership
Sec. 75 of the Philippine Bill general prohibiting corporation engaged in mining was AMENDED by Sec.
7 of Act No. 3518 of the Philippine Legislature
Our Corp Law did not contain any appropriate clause directly penalizing the act of a corporation, a
member of a corporation, in acquiring an interest contrary to paragraph 5 section 13 of the Act
o Subsequently, the Legislature reenacted substantially the same penal provision in Sec 21 of Act
3518, under a title sufficiently broad to comprehend the subject matter. This part of Act No.
3518 became effective upon approval by the Governor General on Dec. 3 1928 and it was
therefore in full force when the contract now in question was made
o Sec. 190(A) Penalties—x x x if the violation is committed by a corporation, the same
shall, upon such violation being proved, be dissolved by quo warranto proceedings
instituted by the Attorney General or by any provincial fiscal by order of said Attorney
General
FLAMENOTES—CORP LAW 11