B.
SPECIFIC POWERS, THEORY OF
VI. Corporate Powers
A. GENERAL POWERS, THEORY OF
GENERAL CAPACITY [SEC. 36]
(1) Sue and be sued in its corporate name;
(2) Succession;
(3) Adopt and use a corporate seal;
(4) Amend its Articles of Incorporation;
(5) Adopt and amend by-laws;
(6) For stock corporations - issue or sell stocks to
subscribers and sell treasury stocks; for non-
stock corporation - admit members to the
corporation;
(7) Purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal
property, pursuant to its lawful business;
(8) Enter into merger or consolidation with other
corporations as provided in the Code;
(9) Make reasonable donations, including those
for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar
purposes: Provided, no corporation, domestic
or foreign, shall give donations in aid of any
political party or candidate or for purposes of
partisan political activity;
(10) Establish pension, retirement, and other
plans for the benefit of its directors, trustees,
officers and employees; and
(11) Exercise such other powers as may be
essential or necessary to carry out its
purposes
NOTE:
The Corporation has implied powers which are
deemed to exist because of the following
provisions:
(1) “Except such as are necessary or incidental to
the exercise of the powers so conferred” [Sec.
45]
(2) “Such powers as are essential or necessary to
carry out its purpose or purposes as stated in
the Articles of Incorporation” – catch-all
phrase [Sec.
36(11)].
SPECIFIC CAPACITY [SECS. 37-44]
(1) Power to Extend or Shorten Corporate Term
(2) Power to Increase or Decrease Capital Stock
or Incur, Create, Increase Bonded
Indebtedness
(3) Power to Deny Pre-Emptive Rights
(4) Power to Sell or Dispose of Corporate Assets
(5) Power to Acquire Own Shares
(6) Power to Invest Corporate Funds in Another
Corporation or Business
(7) Power to Declare Dividends
(8) Power to Enter Into Management
Contract
B.1. EXTEND OR SHORTEN THE CORPORATE
TERM [SEC. 37]
(1) Must be approved by majority vote of the
BOD/ BOT
(2) Ratified at a meeting by shareholders
representing 2/3 of the outstanding capital
stock/ 2/3 of members of nonstock
corporations
(3) Written notice of meeting (includes proposed
action, time and place of meeting) shall be
addressed to each shareholders/member at
his place of residence and deposited to the
addressee in the post office, or served
personally
(4) Appraisal right may be exercised by the
dissenting stockholder for BOTH extension
and shortening of corporate term [See also
Sec. 81]
B.2. INCREASE OR DECREASE CAPITAL
STOCK OR INCUR, CREATE, INCREASE
BONDED INDEBTEDNESS [SEC. 38]
(1) Same requirements above from 1-3
(2) A certificate in duplicate must be signed by a
majority of the directors of the corporation
(countersigned by the chairman and the
secretary of the shareholders meeting),
setting forth:
(a) That requirements of this section have
been complied with
(b) The amount of the increase or diminution
of the capital stock (c) In case of increase,
 (i) the amount of capital stock or number
of shares of no-par stock actually
subscribed
(ii) names, nationalities and residences of
the persons subscribing
(iii) the amount of no-par stock subscribed
by each
(iv) the amount paid by each on his
subscription, or the amount of capital
stock or number of shares of no-par
stock allotted to each stockholder if
such increase is for the purpose of
making effective stock dividend
(d) any bonded indebtedness to be incurred,
created or increased
(e) the actual indebtedness of the corporation
on the day of the meeting
(f) the amount of stock represented at the
meeting
(g) the vote authorizing the increase or
diminution of the capital stock, or the
incurring, creating or increasing of any
bonded indebtedness
(3) prior approval of SEC is required
(4) duplicate certificates shall be kept on file in
the office of the corporation and the other
shall be filed with the SEC, attached in the
original articles of incorporation.
(a) From and after approval of the SEC of its
certificate of filing, the capital stock shall
stand increased or decreased and the
incurring, creating or increasing of any
bonded indebtedness authorized
(b) SEC shall not accept for filing any
certificate of increase unless accompanied
by the sworn statement of the treasurer of
the corporation showing:
(i) That at least 25% of such increased
capital stock have been subscribed
and
(ii) that at least 25% of the amount
subscribed has been paid or that there
has been transferred to the
corporation property the value of which
is equivalent to 25% of the
subscription
(c) SEC shall not approve any decrease in the
capital stock if its effect shall prejudice the
rights of corporate creditors
(5) Bonds issued by a corporation shall be
registered with the SEC
B.3. DENY PREEMPTIVE RIGHT [SEC. 39]
General Rule: All shareholders of a stock
corporation have preemptive right to subscribe to
all issues or disposition of shares of any class, in
proportion to their respective shareholdings
Exception: If such right is denied by the Articles
of Incorporation or an amendment thereto
Pre-emptive right shall not extend to:
(1) shares to be issued in compliance with
laws requiring stock offerings or minimum
stock ownership by the public
(2) shares to be issued in good faith with the
approval of 2/3 of the stockholders
representing outstanding capital stock, in
exchange for property needed for
corporate purposes or in payment of a
previously contracted debt
B.4. SELL OR DISPOSE OF SUBSTANTIALLY
ALL ITS ASSETS [SEC. 40]
(1) Same requirements from 1-3 as Sec. 37
above
(2) Any dissenting shareholders may exercise his
appraisal right
(3) Deemed to cover substantially all the
corporate property and assets
(4) After authorization by the
shareholders/members, the BOD/BOT may
abandon such sale, lease, exchange,
mortgage, pledge or other disposition, subject
to the rights of third parties under any contract
relating thereto, without further action or
approval by the shareholders/ members
(5) Corporation is not restricted in its power to sell
or dispose of its assets without the
authorization of shareholders or members:
(a) if the same is necessary in the usual and
regular course of business of the
corporation or
(b) if the proceeds of the sale will be
appropriated for the conduct of its
remaining business
While the Corporation Code allows the transfer of
all or substantially all the properties and assets of
a corporation, the transfer should not prejudice
the creditors of the assignor. The only way the
transfer can proceed without prejudice to the
creditors is to hold the assignee liable for the
obligations of the assignor. The acquisition by the
assignee of all or substantially all of the assets of
the assignor necessarily includes the assumption
of the assignor’s liabilities, unless the creditors
who did not consent to the transfer choose to
rescind the transfer on the ground of fraud. To
allow an assignor to transfer all its business,
properties and assets without the consent of its
creditors and without requiring the assignee to
assume the assignor’s obligations will defraud the
creditors. The assignment will place the
assignor’s assets beyond the reach of its
creditors. [Caltex (Phils.) Inc. v. PNOC Shipping
and Transport Corp. (2006)]
B.5. ACQUIRE ITS OWN SHARES [SEC. 41]
(1) For a legitimate corporate purpose/s,
including but not limited to the following:
(a) To eliminate fractional shares arising out
of stock dividends
(b) 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;
(c) To pay dissenting or withdrawing
stockholders
(2) Provided there are unrestricted retained
earnings in the corporate books to cover the
shares purchased or acquired
B.6. INVEST IN ANOTHER CORPORATION OR
BUSINESS [SEC. 42]
(1) Same requirements from 1-3 as Sec. 37
above
(2) Any dissenting shareholders shall have
appraisal right
(3) Where the investment is reasonably
necessary to accomplish the corporation’s
primary purpose, the approval of the
shareholders/ members is not necessary
Notes:
If it is for the same purpose, or incidental, or
related to its PRIMARY purpose, the board can
invest the corporate fund WITHOUT the consent
of the stockholders. No appraisal right.
If the investment is in another corporation of
different business or purpose BUT in pursuance
of the SECONDARY purpose, the affirmative vote
of majority of the board consented by
stockholders/ members is required.
If the investment is OUTSIDE the purpose/s for
which the corporation was organized, Articles of
Incorporation must be amended first, otherwise it
will be an Ultra Vires act.
A private corporation, in order to accomplish its
purpose as stated in its articles of incorporation,
and subject to the limitations imposed by the
Corporation Law, has the power to acquire, hold,
mortgage, pledge or dispose of shares, bonds,
securities, and other evidences of indebtedness
of any domestic or foreign corporation. Such an
act, if done in pursuance of the corporate
purpose, does not need the approval of the
stockholders; but when the purchase of shares of
another corporation is done solely for investment
and not to accomplish the purpose of its
incorporation, the vote of approval of the
stockholders is necessary. [De La Rama v. Ma-ao
Sugar Central Co. (1969)]
B.7. DECLARE DIVIDENDS [SEC. 43]
(1) Out of unrestricted retained earnings
(2) Payable in cash, in property, or in stock to all
shareholders on the basis of outstanding
stock held by them
(3) Any cash dividend due on delinquent stock
shall first be applied to the unpaid balance on
the subscription plus costs and expenses
(4) Stock dividends shall be withheld from the
delinquent stockholder until his unpaid
subscription is fully paid
(5) Should be approved by 2/3 of shareholders
representing the outstanding capital stock at a
regular/special meeting called for that
purpose
(6) Stock corporations- prohibited from retaining
surplus profits in excess of 100% of their paid-
in capital stock, except:
(a) When justified by definite corporate
expansion projects or programs approved
by the BOD
(b) When the corporation is prohibited under
any loan agreement with any financial
institution or creditor from declaring
dividends without its consent, and such
consent has not yet been secured
(c) When it can be clearly shown that such
retention is necessary under special
circumstances obtaining in the corporation
Stock dividends cannot be issued to a person
who is not a stockholder in payment of services
rendered.
A corporation may legally issue shares of stock in
consideration of services rendered to it by a
person not a stockholder, or in payment of its (2) A majority of the members of the BOD of the
indebtedness. A share of stock issued to pay for managing corporation also constitute a
services rendered is equivalent to a stock issued majority of the BOD of the managed
in exchange of property, because services is corporation
equivalent to property. It is the shares of stock (3) No management contract shall be entered into
that are originally issued by the corporation and
for a period longer than 5 years for any one
forming part of the capital that can be exchanged
term
for cash or services rendered, or property. A
share of stock coming from stock dividends (4) 1-3 above applies to any contract whereby a
declared cannot be issued to one who is not a corporation undertakes to manage or operate
stockholder of a corporation. [Nielson and Co. v. all or substantially all of the business of
Lepanto Consolidated Mining (1968)] another corporation, whether such are called
service contracts, operating agreements or
otherwise
Cash Dividends v. Stock Dividends
(5) Service contracts or operating agreements
Cash Stock Dividend which relate to exploration, development,
Dividend exploitation or utilization of natural resources
may be entered into for such periods as may
Voting Board of Board of be provided in the pertinent laws and
Requirements Directors Directors + 2/3 regulations
for Issuance of SH holding
OCS
Effect on Shall be Shall be NOTES: 2 general restrictions on the power of the
delinquent applied to withheld from corporation to acquire and hold properties:
stock the unpaid the delinquent (1) property must be reasonably and necessarily
balance on stockholder until required by the business
the his unpaid
subscription subscription is (2) that the power shall be subject to the
plus costs fully paid limitations prescribed by other special laws
and and the Constitution (corporation may not
expense acquire more than 30% of voting stocks of a
bank; corporations are restricted from
Can be No. [Sec. No, since this acquiring public lands except by lease of not
issued by 35] requires SH more than 1000 hectares)
Executive approval
Committee
B.9. ULTRA VIRES ACTS
Definition
B.8. ENTER INTO MANAGEMENT
Ultra Vires acts are those acts which a
CONTRACTS [SEC. 44]
corporation is not empowered to do or perform
(1) Should be approved by the BOD and by
because they are not conferred by its Articles of
shareholders owning at least the majority of
Incorporation or by the Corporation Code, or not
the outstanding capital stock or at least a
necessary or incidental to the exercise of the
majority of the members of both the
powers so conferred [Sec. 45].
managing and the managed corporation at a
meeting duly called for that purpose
(2) Should be approved by the 2/3 of Types of Ultra Vires Acts
stockholders owning outstanding capital (1) Acts done beyond the powers of the
stock/members of the managed corporation corporation as provided in the law or its
when: articles of incorporation;
(1) A stockholder or stockholders representing (2) Acts or contracts entered into in behalf of a
the same interest of both the managing and corporation by persons who have no
managed corporations own more than 1/3 of corporate authority (Note: This is technically
the total outstanding capital stock entitled to Ultra Vires acts of officers and not of the
vote of the managing corporation; or corporation);
(3) Acts or contracts, which are per se illegal as (1) State
being contrary to law. [Villanueva]
(a) Dissolution of the corporation thru a quo
warranto proceeding
I. APPLICABILITY OF ULTRA VIRES
(b) Injunction
DOCTRINE
It is a question, therefore, in each case of the (c) Suspension or revocation of the certificate
logical relation of the act to the corporate purpose of registration by the SEC
expressed in the charter. If that act is one which is
lawful in itself, and not otherwise prohibited, is
done for the purpose of serving corporate ends,
and is reasonably tributary to the promotion of (2) Stockholders
those ends, in a substantial, and not in a remote (a) Injunction
and fanciful sense, it may fairly be considered
within the charter powers. The test to be applied (b) Derivative suit
is whether the act in question is in direct and (c) Ratification (except when a 3rd party is
immediate furtherance of the corporation’s prejudiced or the act is illegal)
business, fairly incident to the express powers
and reasonably necessary to their exercise. If so, (3) Creditors
the corporation has the power to do it; otherwise, (a) Nullification of contract in fraud of
not. [Montelibano v. Bacolod-Murcia Milling Co., creditors
Inc. (1962)]

C.HOW (CORPORATE POWERS)

II. CONSEQUENCES OF ULTRA VIRES ACTS
EXERCISED
(1) Executed contract – courts will not set aside
or interfere with such contracts;
(2) Executory contracts – no enforcement even C.1. BY THE SHAREHOLDERS
at the suit of either party (void and I. CORPORATE ACTS REQUIRING APPROVAL
unenforceable); OF STOCKHOLDERS OR MEMBERS
(3) Partly executed and partly executory – (VOTING AND NON-VOTING SHARES)
principle of “no unjust enrichment at expense General Rule: Vote necessary to approve a
of another” shall apply; particular corporate act as provided in this Code
(4) Executory contracts apparently authorized shall be deemed to refer only to stocks with voting
but Ultra Vires – the principle of estoppel rights [Sec. 6]
shall apply.
Exceptions [Sec. 6]
Voting and non-voting shares shall
Ultra Vires v. Illegal Acts
be entitled to vote in the following cases: (1)
Ultra Vires Acts Illegal Acts Amendment of Articles of Incorporation
Not necessarily Unlawful; against law,
unlawful, but morals, public policy, and (2) Adoption, Amendment and Repeal of By-Laws
[Sec. 48]
outside the powers public order
of the corporation (3) Sale, Lease, Mortgage or Other
Disposition of Substantially all corporate
Can be ratified Cannot be ratified
assets [Sec. 40]
Can bind the Cannot bind the
parties if wholly or parties (4) Incurring, Creating or Increasing Bonded
partly executed Indebtedness [Sec. 38]
Voidable, and may Void and cannot be (5) Increase or Decrease of Capital Stock [Sec.
be enforced by validated 38]
performance,
ratification or (6) Merger and Consolidation [Sec. 76-80]
estoppel (7) Investment of funds in another corporation or
business or for any purpose other than the
Remedies in Case of Ultra Vires Acts primary purpose for which it was organized
[Sec. 42]
 Requisites [Sec. 42] (Bar 1995): real property needed by the corporation, the final
say will have to be with the board, whose
(a) Approval of majority of the BOD or
approval will finalize the transaction. [Spouses
trustees
Constantine Firme v. Bukal Enterprises and
(b) Ratification by the stockholders Development Corporation (2003)]
representing at least 2/3 of the
Outstanding Capital Stock or the members Requisites of a VALID Corporate Act by the
at a meeting duly called for the purpose BOD [Sec. 25]:
(c) Written notice addressed to each (a) The Board must act as a BODY in a meeting.
stockholder or member at his place of Note: Current SEC regulations allow BOD
residence as shown on the books of the meetings by teleconferencing or
corporation videoconferencing (SEC Memo Circular
No.15, series of 2001, in relation to Sec. 16 of
(d) Appraisal right available to dissenting
R.A. 8792)
stockholders or members
(8) Dissolution of the Corporation [Sec. 118- (b) There must be a VALIDLY constituted
121] meeting.
(c) Their act must be supported by a MAJORITY
OF THE QUORUM duly assembled
II. CORPORATE ACTS REQUIRING
(Exception: Election of officers requires a
APPROVAL OF STOCKHOLDERS OR
vote of majority of ALL the members of the
MEMBERS (VOTING SHARES ONLY)
board)
(1) Declaration of Stock Dividends [Sec. 43]
(d) The act must be within the powers conferred
(2) Management Contracts [Sec. 44] to the Board.
(3) Fixing the Consideration of No-Par shares
[Sec. 62]
C.3. BY THE OFFICERS
(4) Fixing the Compensation of Directors [Sec. Corporate Officer Corporate Employee
30]
Position is provided Employed through the
for in the by-laws or action of the managing
under the Corp. officer of the corporation
C.2. BY THE BOD
Code
Board as Repository of Corporate Powers RTC has NLRC has jurisdiction in
General Rule (Doctrine Of Centralized jurisdiction in case case of labor
Management): The corporate powers of the of labor disputes
corporation shall be exercised, all business dispute
conducted, and all property of controlled and held
by the BOD or trustees. [Sec. 23] I. WHO ARE CORPORATE OFFICERS
[SEC. 25]
Exceptions:
President Secretary Treasurer
(1) Executive Committee duly authorized in the
Director YES NO NO
by-laws [Sec. 35]; Filipino NO YES YES
(2) A contracted manager which may be an Citizen
individual, a partnership, or another Residency NO YES YES
corporation. Prohibited Secretary President President
NOTE: In case the contracted manager is concurren or
another corporation, the special rule in Sec. t Treasurer
44 applies. positions
(3) In case of close corporations, the
stockholders may manage the business of the (1) President – must be a director;
corporation rather than by a BOD, if the (2) Treasurer – may or may not be a director; as
Articles of Incorporation so provide [Sec. 97] a matter of sound corporate practice, must be
a resident and citizen of the Phil (SEC
The power to purchase real property is vested in
opinion)
the BOD or trustees. While a corporation may
appoint agents to negotiate for the purchase of
(3) Secretary – need not be a director unless
required by the by-laws; must be a resident
and citizen of the Philippines; and
(4) Other officers as may be provided in the by-
laws.
NOTE: Any 2 or more positions may be held
concurrently by the same person, EXCEPT that
no one shall act as president and secretary or as
president and treasurer at the same time.
Additional qualifications of officers may be
provided for in the by-laws [Sec. 47(5)]
Conformably with Sec. 25 of the Corporation
Code, a position must be expressly mentioned in
the by-Laws in order to be considered as a
corporate office. Thus, the creation of an office
pursuant to or under a by-Law enabling provision
is not enough to make a position a corporate
office. Guerrea v. Lezama (1958), the first ruling
on the matter, held that the only officers of a
corporation were those given that character either
by the Corporation Code or by the By-Laws; the
rest of the corporate officers could be considered
only as employees or subordinate officials.
[Matling Industrial and Commercial Corp. v.
Coros (2010)]
A different interpretation can easily leave the way
open for the BOD to circumvent the
constitutionally guaranteed security of tenure of
the employee by the expedient inclusion in the
By-Laws of an enabling clause on the creation of
just any corporate officer position.
“An ‘office’ is created by the charter of the
corporation and the officer is elected (or
appointed) by the directors or stockholders” [Real
v. Sangu Philippines citing Easycall
Communications Phils., Inc. v. King, 2005,
(2011)]
“Corporate officers’ in the context of PD No. 902-
A are those officers of the corporation who are
given that character by the Corporation Code or
by the corporation’s bylaws. There are three
specific officers whom a corporation must have
under Sec. 25 of the Corporation Code. These
are the president, secretary and the treasurer.
The number of officers is not limited to these
three. A corporation may have such other
officers as may be provided for by its by-laws like,
but not limited to, the vice-president, cashier,
auditor or general manager. The number of
corporate officers is thus limited by law and by the
corporation’s by-laws” (citing Garcia v. Eastern
Telecommunications Philippines, Inc., 2009).
ii. DISQUALIFICATIONS [SEC. 27]
(1) Convicted by final judgment of an offense
punishable by imprisonment for a period
exceeding 6 years
(2) Convicted by final judgment of a violation of
the Corporation Code committed within 5
years prior to the date of his election or
appointment. This includes violations of rules
and regulations issued by the SEC to
implement the provisions of the Corporation
Code.
III. AUTHORITY OF CORPORATE
OFFICERS
A person dealing with a corporate officer is put on
inquiry as to the scope of the latter’s authority but
an innocent person cannot be prejudiced if he
had the right to presume under the circumstances
the authority of the acting officers.
Associated Bank v. Pronstroller (2008,
Nachura):
Q: What is the Doctrine of Apparent Authority?
A: If a corporation knowingly permits one of its
officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to
the public as possessing the power to do those
acts; the corporation will, as against anyone who
has in good faith dealt with it through such agent,
be estopped from denying the agent’s authority.
D. TRUST FUND DOCTRINE
Trust Fund Doctrine means that the capital stock,
properties and other assets of a corporation are
regarded as equity in trust for the payment of
corporate creditors. Stated simply, the trust fund
doctrine states that all funds received by the
corporation in payment of the shares of stock
shall be held in trust for the corporate creditors
and other stockholders of the corporation. Under
such doctrine no fund shall be used to buy back
the issued shares of stock except only in
instances specifically allowed by the Corporation
Code. [Boman Environmental Development
Corporation v. CA (1988)]
The subscribed capital is the same amount that The trust fund doctrine is not limited to reaching
can loosely be termed as the “trust fund” of the the stockholder’s unpaid subscriptions. The scope
corporation. The “Trust Fund” doctrine considers of the doctrine when the corporation is insolvent
this subscribed capital as a trust fund for the encompasses not only the capital stock, but also
payment of the debts of the corporation, to which other property and assets generally regarded in
the creditors may look for satisfaction. Until equity as a trust fund for the payment of corporate
the liquidation of the corporation, no part of debts. All assets and property belonging to the
the subscribed capital may be returned or corporation held in trust for the benefit of creditors
released to the stockholder (except in the that were distributed or in the possession of the
redemption of redeemable shares) without stockholders, regardless of full payment of their
violating this principle. Thus, dividends must subscriptions, may be reached by the creditor in
never impair the subscribed capital; subscription satisfaction of its claim.
commitments cannot be condoned or remitted; Also, under the trust fund doctrine, a corporation
nor can the corporation buy its own shares using
has no legal capacity to release an original
the subscribed capital as the consideration
subscriber to its capital stock from the obligation
therefor. [NTC v. CA (1999)]
of paying for his shares, in whole or in part,
Under Sec. 43 of Code, the corporation can without a valuable consideration, or fraudulently,
declare dividends only out of "unrestricted to the prejudice of creditors. The creditor is
retained earnings;" and that under Sec. 122, no allowed to maintain an action upon any unpaid
corporation shall distribute any of its assets or subscriptions and thereby steps into the shoes of
property except upon lawful dissolution and after the corporation for the satisfaction of its debt.
payment of all its debts and liabilities. These To make out a prima facie case in a suit against
provisions in essence provide for the "trust fund stockholders of an insolvent corporation to
doctrine" where the "subscription to the capital compel them to contribute to the payment of its
of a corporation constitute a fund to which debts by making good unpaid balances upon their
creditors have a right to look for satisfaction subscriptions, it is only necessary to establish
of their claims." [Philippine Trust Co. v. Rivera that the stockholders have not in good faith paid
(1923)] the par value of the stocks of the corporation.
"The Trust Fund Doctrine, first enunciated by this [Donnina Halley v. Printwell, Inc. (2011)]
Court in the 1923 case of Philippine Trust Co. v.
Rivera' is the underlying principle in the procedure
for the distribution of capital assets, embodied in
Corporation Code, which allows the distribution of
corporate capital only in three instances:
(1) amendment of the Articles of
Incorporation to reduce the authorized
capital stock,
(2) purchase of redeemable shares by the
corporation, regardless of the existence of
unrestricted retained earnings, and
(3) dissolution and eventual liquidation of the
corporation.
Furthermore, the doctrine is articulated in Sec. 41
on the power of a corporation to acquire its own
shares and in Sec. 122 on the prohibition against
the distribution of corporate assets and property
unless the stringent requirements therefore are
complied with. [Ong Yong v. Tiu (2003)]
The creditors of a corporation have the right to
assume that so long as there are debts and
liabilities, the BOD will not use corporate assets to
purchase its own shares of stock or to declare
dividends to its stockholders when the corporation
is insolvent. [Steinberg v. Velasco (1929)]