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IRENEO A. ELEPONIO JR.

, CPA POWERS OF A CORPORATION

JANUARY 29, 2013

EXPRESS POWERS- powers expressly conferred upon the corporation by law. Sec. 36. Corporate powers and capacity. - Every corporation incorporated under this Code has the power and capacity: 1. To sue and be sued in its corporate name; 2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation; 3. To adopt and use a corporate seal; 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

IMPLIED POWERS- powers which are reasonably necessary o exercise the express power and to accomplish the purposes for which the corporation was formed. Classifications of implied powers: 1. 2. 3. 4. 5. Acts in the usual course of business- acts necessary to run the business Act to protect debts owing to a corporationEmbarking in different business Acts in part or wholly to protect or aid employees Acts to increase business

INCIDENTAL POWERS- exists independently with express powers. Like; power of succession; to sue and be sued; to have a corporate name; to adopt and use a corporate seal; to contract; to make by-laws, etc. Section 2- A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.

SPECIFIED POWERS 1. To sue and be sued in its corporate name;

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION


BS SAVINGS BANK VS SIA-

JANUARY 29, 2013

The petitioner assailed the resolution of the CA when the latter denied the same on the ground that the Certification on anti-forum shopping incorporated in the petition was signed not by the duly authorized representative of the petitioner, as required under Supreme Court Circular No. 28-91 but by its counsel. There was an MR which BA Savings Bank attached the Corporate Secretarys Certificate and showed that the petitioners Board of Directors approved a Resolution, authorizing the petitioners lawyers to represent it in any action or proceeding before any court, tribunal or agency; and to sign, execute and deliver the Certificate of Non-forum Shopping, among others. MR was denied. Issue: whether Supreme Court Revised Circular No. 28-91 allows a corporation to authorize its counsel to execute a certificate of non-forum shopping for and on its behalf. Held: The Board Resolution was sufficient to vest such persons with the authority to bind the corporation and was specific enough as to the acts they were empowered to do. A corporation, being a juridical entity, may act only through its directors, officers and employees and obligations incurred by them, acting as corporate agents, are not theirs but the direct accountabilities of the corporation they represent.

POWER TO EXTEND OR SHORTENED CORPORATE TERM Section 37- A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That in case of extension of corporate term, any dissenting stockholder may exercise his appraisal right under the conditions provided in this code. (n) Sec. 81. Instances of appraisal right.- Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in the following instances: 1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence;

POWER TO INCREASE OR DECREASE CAPITAL STOCK Sec. 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. - No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and, at a stockholder's meeting duly called for the purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the stockholder's meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally.

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION

JANUARY 29, 2013

A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the chairman and the secretary of the stockholders' meeting, setting forth: (1) That the requirements of this section have been complied with; (2) The amount of the increase or diminution of the capital stock; (3) If an increase of the capital stock, the amount of capital stock or number of shares of nopar stock thereof actually subscribed, the names, nationalities and residences of the persons subscribing, the amount of capital stock or number of no-par stock subscribed by each, and the amount paid by each on his subscription in cash or property, or the amount of capital stock or number of shares of no-par stock allotted to each stock-holder if such increase is for the purpose of making effective stock dividend therefor authorized; (4) Any bonded indebtedness to be incurred, created or increased; (5) The actual indebtedness of the corporation on the day of the meeting; (6) The amount of stock represented at the meeting; and (7) The vote authorizing the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission. One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the Securities and Exchange Commission and attached to the original articles of incorporation. From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twentyfive (25%) percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: Provided, further, That no decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors. Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the purpose. Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which shall have the authority to determine the sufficiency of the terms thereof. (17a)

Sec. 16. Amendment of Articles of Incorporation. - Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission. The amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation.

MADRIGAL CO. VS ZAMORA

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION

JANUARY 29, 2013

Facts: The laborer in this case, asked with the petitioner for an increase of salary, allowances and other economic benefits by means of CBA. The petitioner deferred to return to the negotiation table; instead, an alleged resolution of its stockholders authorized the reduction of its capital stocks through the distribution of marketable securities which again, reduced its authorized capital stocks using the same scheme. In addition, because of the desire of the stockholders to phase out the operations of the Madrigal & Co., Inc. due to lack of business incentives and prospects, and in order to prevent further losses, it had to reduce its capital stock on two occasions . The Madrigal & Co., Inc. is without substantial income to speak of, necessitating a reorganization, by way of retrenchment, of its employees and operations

Held: 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 hearing to labor of the vast profits obtained by its joint efforts with capital through the years, and would constitute unfair labor practice. While the reduction in capital stock created an apparent need for retrenchment, it was, by all indications, just a mask for the purge of union members, who, by then, had agitated for wage increases. In the face of the petitioner companys piling profits, the unionists had the right to demand for such salary adjustments.Accordingly, this court is convinced that the petitioners capital reduction efforts were, to begin with, a subterfuge, a deception as it were, to camouflage the fact that it had been making profits, and consequently, to justify the mass lay off in its employee ranks, especially of union members. They were 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. Surely, we can neither countenance nor condone this.

POWER TO SELL, DISPOSE, LEASE OR ENCUMBER ASSETS Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on illegal combinations and monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of non-stock corporation, by the vote of at least to two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code. A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. After such authorization or approval by the stockholders or members, the board of directors or trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval by the stockholders or members. Nothing in this section is intended to restrict the power of any corporation, without the authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its property and assets if the same is necessary in the usual and regular course of business of said corporation or if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business.

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION

JANUARY 29, 2013

In non-stock corporations where there are no members with voting rights, the vote of at least a majority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section. (28 1/2a)

PENE VS PAMBUSCO The respondent, PAMBUSCO, was the original owner of the two lots that were mortgaged to the DBP which later on foreclosed. Such properties were awarded to highest bidder, the petitioner. The BOD, consists of 3 out of 5 members PAMBUSCO resolved to assigned its right of redemption and authorized one of its members to execute and sign a deed of assignment in favor of Marcelino Enriquez. The latter executed a deed of absolute sale in favor of spouses Yap and Lugue. The petitioner questioned the resolution made by the BOD and be declared null and void on the ground that such resolution was resolved by only three of the BODs. As a defense of PAMBUSCO, there is no categorical declaration in the by-laws that a failure to comply with the attendance requirement in a special meeting should make all the acts of the board therein null and void ab initio.

Held: SC held that the resolution is null and void. Under the code, the sale or disposition of all and/or substantially all properties of the corporation requires, in addition to a proper board resolution, the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation in a meeting duly called for that purpose. No doubt, the questioned resolution was not confirmed at a subsequent stockholders meeting duly called for the purpose by the affirmative votes of the stockholders holding at least two-thirds (2/3) of the voting power in the corporation. The same requirement is found in Section 40 of the present Corporation Code.

IDP VS CA The subject of this petition for review is the Decision of CA setting aside the portion of the Decision of the SEC which declared null and void the sale of two (2) parcels of land covered by the Deed of Absolute Sale entered into by and between private respondent INC and the Carpizo Group-IDP. The primary purpose of the incorporation of the IDP is to establish Mosque and Arabic school so as to facilitate the effective practice of Islamic faith in the area. During Marshall Law, most of the members of the 1971 Board of Trustees flew to the Middle East to escape political persecution. Thereafter, other Islamic groups claimed to be the legitimate IDP. The SEC then declared the election both the Carpizo Group and the Abbas Group as IDP board members to be null and void. Despite of the SEC decision, the Carpizo Group caused to be signed an alleged Board Resolution11 of the IDP, authorizing the sale of the subject two parcels of land to the private respondent INC. The Tamano Group, filed a petition before the SEC, seeking to declare null and void the Deed of Absolute Sale signed by the Carpizo Group and the INC since the group of Engineer Carpizo was not the legitimate Board of Trustees of the IDP. RTC ordered -Carpizo Group to comply with its obligation under the Deed of Sale of clearing the subject lots of squatters and of delivering the actual possession thereof to INC. ISSUE: W/N the Carpizo Group has the power to sell or dispose of IDP property? Held: Sale by the Board of the only property of the corporation without compliance with the provisions of Sec. 40 of the Corporation Code requiring the ratification of members representing at least two-thirds of the membership, would make the sale null and void The SC held that all acts carried out by the Carpizo Board, particularly the sale of the Tandang Sora property, allegedly in the name of the IDP, have to be struck down for having been done without the consent of the IDP thru a legitimate Board of Trustees for failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the corporation.

POWER TO DENY PRE-EMPTIVE RIGHTS Sec. 39. Power to deny pre-emptive right. - All stockholders of a stock corporation shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any class, in

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION

JANUARY 29, 2013

proportion to their respective shareholdings, unless such right is denied by the articles of incorporation or an amendment thereto: Provided, That such pre-emptive right shall not extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; or to shares to be issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock, in exchange for property needed for corporate purposes or in payment of a previously contracted debt.

DATU VS SEC Facts: The petitioner questioned the additional issuance of previously subscribed shares of the corporation that was made in violation of-his pre-emptive right to said additional issue and that the increase in the authorized capital stock of the corporation from P200,000.00 to P1,000,000.00 was illegal considering that the stockholders of record were not notified of the meeting wherein the proposed increase was in the agenda. The SEC ruled for the validity of issuance of additional shares and was not subject to the pre-emptive rights of stockholders, including the petitioner. So, the case went up to SC. Held: The general rule is that pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares. A stockholder enjoys no pre-emptive right to buy unissued shares of originally authorized capital stock.Petitioner bewails the fact that in view of the lack of notice to him of such subsequent issuance, he was not able to exercise his right of pre-emption over the unissued shares. This is on the theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscriber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later reoffered, he cannot therefore claim a dilution of interest.

POWER TO PURCHASE OWN SHARE Sec. 41. Power to acquire own shares. - A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired: 1. To eliminate fractional shares arising out of stock dividends; 2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and 3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code. (n)

PHILTRUST- The reason given for the failure of the defendant to pay the entire subscription is, that not long after the Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred, at which a resolution was adopted to the effect that the capital should be reduced by 50 per centum and the subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50 per centum of the same. As a result of this resolution it seems to have been supposed that the subscriptions of the various shareholders had been cancelled to the extent stated; and fully paid certificates were issued to each shareholder for one-half of his subscription. It does not appear that the formalities prescribed in section 17 of the Corporation Law (Act No. 1459) , as amended, relative to the reduction of capital stock in corporations were observed, and in particular it does not appear that any certificate was at any time filed in the Bureau of Commerce and Industry, showing such reduction. His Honor, the trial judge, therefore held that the resolution relied upon by the defendant was without effect and that the defendant was still liable for the unpaid balance of his subscription.

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION

JANUARY 29, 2013

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts. (Velasco vs. Poizat, 37 Phil., 802.) A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable consideration for such release; and as against creditors a reduction of the capital stock can take place only in the manner and under the conditions prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory regulations is necessary (14 C. J., 498, 620).

BOMAN V CAFacts: The respondent, NILCAR Y. FAJILAN, who is also the president of BOMAN tendered its resignation as president which was accepted during the Board meeting. They elected a new president and the respondent offer to sell his shares back to the corporation which was approved by the Board promising to pay for them on a staggered basis. However, BEDECO defaulted in paying the balance of P200,000. Thus, FAJILAN filed a case at RTC Makati but was dismissed for lack of jurisdiction. CA reversed.

Held: Fajilan's suit against the corporation to enforce the latter's promissory note or compel the corporation to pay for his shareholdings is cognizable by the SEC alone which shall determine whether such payment will not constitute a distribution of corporate assets to a stockholder in preference over creditors of the corporation. The SEC has exclusive supervision, control and regulatory jurisdiction to investigate whether the corporation has unrestricted retained earnings to cover the payment for the shares, and whether the purchase is for a legitimate corporate purpose as provided in Sections 41 and 122 of the Corporation Code, which reads as follows: "SEC. 41. Power to acquire own shares.A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired; "1. To eliminate fractional shares arising out of stock dividends; "2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and "3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code,"

Power to invest corporate funds in another corporation or business or for any other purpose Sec. 42. Power to invest corporate funds in another corporation or business or for any other purpose. - Subject to the provisions of this Code, a private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least two thirds (2/3) of the members in the case of non-stock corporations, at a stockholder's or member's meeting duly called for the purpose. 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 as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting stockholder shall have appraisal right as provided in this Code: Provided, however, That where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval of the stockholders or members shall not be necessary. (17 1/2a)

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION


Power to enter into management contract.

JANUARY 29, 2013

Sec. 44. Power to enter into management contract. - No corporation shall conclude a management contract with another corporation unless such contract shall have been approved by the board of directors and by stockholders owning at least the majority of the outstanding capital stock, or by at least a majority of the members in the case of a nonstock corporation, of both the managing and the managed corporation, at a meeting duly called for the purpose: Provided, That (1) where a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation; or (2) where a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of directors of the managed corporation, then the management contract must be approved by the stockholders of the managed corporation owning at least two-thirds (2/3) of the total outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the case of a non-stock corporation. No management contract shall be entered into for a period longer than five years for any one term. The provisions of the next preceding paragraph shall apply to any contract whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation, whether such contracts are called service contracts, operating agreements or otherwise: Provided, however, That such service contracts or operating agreements which relate to the exploration, development, exploitation or utilization of natural resources may be entered into for such periods as may be provided by the pertinent laws or regulations. (n)

POWER TO MAKE DONATIONS SECTION 36(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;

POWER TO ENTER INTO A JOINT VENTURE No corporation shall conclude a management contract with another corporation unless such contract shall have been approved by the board of directors and by stockholders owning at least the majority of the outstanding capital stock, or by at least a majority of the members in the case of a non-stock corporation, of both the managing and the managed corporation, at a meeting duly called for the purpose: Provided, That (1) where a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation; or (2) where a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of directors of the managed corporation, then the management contract must be approved by the stockholders of the managed corporation owning at least two-thirds (2/3) of the total outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the case of a non-stock corporation. No management contract shall be entered into for a period longer than five years for any one term. The provisions of the next preceding paragraph shall apply to any contract whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation, whether such contracts are called service contracts, operating agreements or otherwise: Provided, however, That such service contracts or operating agreements which relate to the exploration, development, exploitation or utilization of natural resources may be entered into for such periods as may be provided by the pertinent laws or regulations. (n) LOPEZ REALTY V FONTECHA

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION

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Providing gratuity pay for its employees is one of the express powers of a corporation under the Corporation Code, and cannot be considered to be ultra viresto avoid any liability arising from the resolution granting such gratuity pay. -The assailed resolutions before us cover a subject which concerns the benefit and welfare of the companys employees. To stress, providing gratuity pay for its employees is one of the express powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any liability arising from the issuance of the subject resolutions.

ULTRA VIRES ACTS Sec. 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) Is one not within the express, implied, and incidental powers of the corporation. It is an act which is impliedly forbidden, because it is not expressly r impliedly authorized or necessary or incidental in the exercise of such powers so conferred. Acts within the legitimate powers of a corporation are called intra vires. Illustration: A corporation was organized for the purpose of engaging in the buying and selling of home appliances. The act of buying and selling motor vehicles would be ultra vires although it is in itself lawful, because it is outside the object for which the corporation is created and therefore, beyond its powers. The buying and selling of refrigerators would be intra vires. Based on two (2) principles: 1. Corporation is a creature of law and has only such powers and privileges as are granted by the State1 2. The doctrine upholds the duty of trust and obedience owed by the corporations directors and officers to the SHs a. Defense of ultra vires rests on the violation of trust or duty towards SHs, and should not be entertained where its allowance will do greater wrong to innocent 3rd parties There are 3 types of ULTRA-VIRES acts: a. Acts beyond the powers of the corporation as stipulated in law or AOI b. Acts or contracts entered in behalf of the corporation by persons w/o corporate authority GR: In the absence of an authority from the board, no person , not even the officers can validly bind the corporation Exception: Doctrine of apparent Authority; In dealing with corporations, the public at large is bound to rely upon outward appearances, and relying on such, if it be found that the directors permitted the agent to hold himself out as having authority to bind or acquiesced in the contract and accepted the benefits therefrom, the corporation will be bound. (Ramirez v. Orientalist). A contract signed by the President/Chairman without authority from the Board of Directors is void. Although the by-laws grant authority to the President to execute and sign for and in behalf of the corporation all contracts and agreements which the corporation may enter into, the same presupposes a prior act of the corporation exercised through its Board of Directors.
1

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c.

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Acts or contracts which are per se illegal. i. This cannot be given legal effect and are void BUT in Harden v. Benguet, SC upheld a patently void contract as between the contracting parties. SC said that public policy is controlling in the grant of mining rights. The violation of the prohibition against mining corporations from owning stock of another corporation though illegal did not in any way affect the contract. This violation can only be proceeded upon by way of a criminal prosecution or by quo warranto which can be maintained only by the State. Insofar as the parties are concerned, no civil wrong had been committed between them, and if public wrong had been committed, then the directors of both Balatoc and Harden were the active inducers of that wrong. Thus, since the contract has been performed on both sides and there is no possibility of undoing what has been done, and though the corporate contracts are illegal per se, when only the public or government policy or interests are at stake and no private wrong is committed, the courts will leave the parties as they are, in accordance with their original contractual stipulations.

ii.Ultra- Vires Acts which are not per se illegal are merely voidable hence can be ratified by SHs. (Pirovano case) In the case of Pirovano v. Dela Rama, which involves the issue of whether or not the donation by the corporation of the proceeds of the insurance is an ultra-vires act, SC held that such donation is not ultravires. SC said that it comes within the broad power under the AOI that the Corporation may invest and deal with moneys of the company not immediately required. The word deal is broad enough to include any manner of disposition. Furthermore, assuming that it was ultra-vires, there was ratification by the SHs. Finally, the donation was already consummated. The defense of ultra-vires cannot be set-up against completed or consummated transactions.

Form of Ratification: a. Express act of SH(if act is by the Board) or Board(if act is by the officers) b. Implied through acceptance of benefits c. Through estoppel on the part of Board or the officers

Effect/s of Ratification: Cures the infirmity and makes it perfectly valid and enforceable, PROVIDED that it prejudices no creditors and if it has been partially executed and not merely executory

Atrium v. CA Atrium Management Corporation filed with RTC action for collection of the 4 postdated checks issued by the Hi-cement Corporation, though its signatories de Leon, treasurer, and de las Alas, chairman of the corporation to a certain ET Henry and Co which the latter endorsed to Atrium for rediscounting. The act of issuing was well within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation, hence, not an ultravires act.

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION

JANUARY 29, 2013

An ultravires act is distinguished from illegal act, the former being voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated. SC however, held de Leon negligent.

Republic of the Philippines vs. Acoje Mining Co. The company is estopped from denying liability on the ground that the board resolution is ultravires. Assuming arguendo that the resolution is an ultra vires act, the same is not void for it was approved not in contravention of law, customs, public order and public policy. [In this case, even if the setting up of a post office in the mining camp is outside the express powers, it is necessary to promote the interest and welfare of the corporation] The term ultravires should be distinguished from an illegal act for the former is merely voidable which may be enforced while the latter is void and cannot be validated. General consequences of ultravires acts are as follows: a) Corporation may be dissolved under a quo warranto proceeding but in most cases, the court merely enjoins the corporation from commission of the ultra vires acts b) Certificate of Registration may be suspended or revoked by SEC c) Parties to the ultravires contract if executory on both sides neither party can ask for specific performance. Will be left as they are if the contract has been fully executed on both sides. If one party has performed his part, the contract will be enforced provided it is not illegal d) Contract proceeding from an ultra-vires act is voidable e) Any stockholder may bring either an individual or derivative suit to enjoin a threatened ultravires act or contract. If act or contract has already been performed, a derivative suit for damages may be filed against the directors, but their liability will depend on whether they acted in good faith and with reasonable diligence in entering into contracts. When based on tort, cannot set-up the defense of ultravires against injured party who had no knowledge that such was ultravires f) May become binding by the ratification of all stockholders unless third parties are prejudice thereby or unless the acts is illegal

Facts: The respondent company wrote to the director of Posts for the establishment of post office branch at the mining camp of the respondent. On the second letter to the company, the Director stated, among other things, that; In cases where a post office will be opened under circumstances similar to the present, it is the policy of this office to have the company assume direct responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on the part of the employee of the company who is assigned to take charge of the post office, thereby suggesting that a resolution be adopted by the board of directors of the company expressing conformity to the above condition relative to the responsibility to be assumed buy it in the event a post office branch is opened as requested. On the condition that the post master who will assume the said position will be paid by the respondent. Further, there was a resolution However, when the assigned personnel took the 3days leave, he never returned and found out that there were shortages which the government would like to recover from the respondent company.

The claim that the resolution adopted by the board of directors of appellant company is an ultra vires act cannot also be entertained it appearing that the same covers a subject which concerns the benefit, convenience and welfare of its employees and their families. Held: While as a rule an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law (19 C.J.S., Section 965, p. 419), there are however certain corporate acts that may be performed outside of the scope of the powers expressly conferred if they are necessary to promote the

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION

JANUARY 29, 2013

interest or welfare of the corporation. Thus, it has been held that although not expressly authorized to do so a corporation may become a surety where the particular transaction is reasonably necessary or proper to the conduct of its business,1 and here it is undisputed that the establishment of the local post office is a reasonable and proper adjunct to the conduct of the business of appellant company. Indeed, such post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality.

Legal Consequences of Ultra-Vires Acts (Classified)

1. On the Corporation If the act is ILLEGAL, involuntary dissolution under a quo warranto proceeding by the SolGen Revocation or suspension of the certificate of registration by SEC 2. On the parties to the ultra-vires contract Parties are left as they are and no rescission would lie Where there has been partial performance by one party and the other has not, the latter having benefited from the performance, is estopped from claiming ultra-vires 3. On the rights of Stockholders A SH can file an individual or derivative suit to enjoin a threatened ultra vires act or contract or a derivative suit for damages if the contract has been performed Liability would depend on whether the contracting parties acted in GF and with reasonable diligence; an honest mistake would not give rise to liability If action is based on tort, the SHs cannot set up the defense of ultra vires against the injured party who had no knowledge that the corporation was engaging in an act not included expressly or impliedly in its purpose clause

TEST TO DETERMINE ULTRA VIRES MONTELIBANO VS BACOLOD-MURCIA Bacolod-Murcia Milling Co., Inc. cannot deny its obligation to increase the participation of their planters as embodied in the resolution duly adopted by its Board of Directors when the corporation extended its milling contract with the planters. The court also reiterated the rule that questions of policy or of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment with that of the Board of Directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are nor reviewable by the courts. HELD: 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. If so, the corporation has the power to do it; otherwise, not."

PIROVANO VS DELA RAMA STREAMSHIP FACTS: Enrico Pirovano, president of the defendant company, managed the companyuntil it became a multi-million corporation by the time Pirovano was executed by the Japanese during the occupation. BOD Resolution: Out of the proceeds, the sum of P400,000 be set aside for equal division among the 4 minor children, convertible into shares of stock of the De la Rama Steamship Company, at

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IRENEO A. ELEPONIO JR., CPA POWERS OF A CORPORATION

JANUARY 29, 2013

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 each of the 4 minor heirs to obtain 1,000 shares at par, if the Pirovano children would given 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. The company ammended 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. RTC: contract or donation is not ultra vires ISSUE: W/N corporation donation of the proceeds of insurance policies is an ultra vires act

HELD: NO. valid and binding. Where the corporation was given broad and almost unlimited powers to carry out the purposes for which it was organized among them, to aid in any other manner any person in the affairs and prosperity of whom it has a lawful interest, a donation made to the heirs of its late president in recognition of the valuable services rendered by the latter which had immensely contributed to its growth, comes within this broad grant of power and can not be considered an ultra vires act. LUNETA MOTORS VS AD SANTOS Facts: Petitioner claims in this regard that its corporate purposes are to carry on a general mercantile and commercial business, etc., and that it is authorized in its articles of incorporation to operate and otherwise deal in and concerning automobiles and automobile accessories' business in all its multifarious ramification (petitioner's brief p. 7) and to operate, etc., and otherwise dispose of vessels and boats, etc., and to own and operate steamship and sailing ships and other floating craft and deal in the same and engage in the Philippine Islands and elsewhere in the transportation of persons, merchandise and chattels by water; all this incidental to the transportation of automobiles (id., pp. 7-8 and Exhibit B). But it was challenged by the respondent that it was not authorized to engage in the taxicab business or operate as a common carrier;

Issue: The issue here is precisely whether the purpose for which petitioner was organized and the transaction of its lawful business reasonably and necessarily require the purchase and holding by it of a certificate of public convenience like the one in question and thus give it additional authority to operate thereunder as a common carrier by land. Held: It is not denied that under Section 13(5) of the Corporation Law, a corporation created thereunder may purchase, hold, etc., and otherwise deal in such real and personal property as the purpose for which the corporation was formed may permit, and the transaction of its lawful business may reasonably and necessarily require. Such acquisition would be without purpose and would have no necessary connection with petitioner's legitimate business. When the article of incorporation expressly provides that the purpose of the corporation was to engage in the transportation of person by water, such corporation cannot engage in the business of land transportation, which is an entirely different line of business, and, for which reason, may not acquire any certificate of public convenience to operate a taxicab service.

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