MIDTERMS: CORPORATION LAW
the injured party, the power to sue is lodged and
CHAPTER 8: CORPORATE POWERS AND
AUTHORITY
Theory on Corporate Powers: a corporation has no
power except those expressly conferred on it by the
Corporation Code and its charter and those implied
or incidental to its existence.
Doctrine of Creature of Limited Power: Sec 45
provides that “No Corporation shall possess or
exercise any corporate powers except those
conferred by this Code or by its articles of
incorporation and except such are necessary or
incidental to the exercise of powers so conferred.”
Under ultra vires doctrine, a corporation has only
three types of powers the express, implied and
incidental powers.
Doctrine of Centralized Management: Sec 23
provides that “unless otherwise provided in this
Code, all corporate powers shall be exercised by,
and all corporate business shall be conducted
through, the Board of Directors of the Corporation.”
- There are instances that in order to be biding and
effective, it requires the consent or ratification of
the stockholders and members and also on the part
of the State.
EXPRESS POWERS: Art. 46 of the CC provides that
“Juridical persons may acquire and possess property
of all kinds as well as incur obligation and bring civil
and criminal actions in conformity with the laws and
regulations of the organization.
Sec 36 of the Code expressly enumerates express
powers of the Corporation some of which are really
considered to be inherent or incidental powers,
which means that even when not expressly granted
by law they are deemed to be within the capacity of
corporate entities, such as the power to adopt and
amend a set of by-laws.
* Power to Sue and be Sued: if the corporation is
within the discretion of the BOD.
For a derivative suit to prosper, it is required that
the minority stockholder suing for and on behalf of
the corporation must allege in his complaint that he
is suing on a derivative cause of action.
GR, lodged in the BOD, EXC, derivative suit.
If corporation is the petitioner, a board resolution
authorizing a corporate officer to execute certificate
against non-forum shopping is necessary, hence
subject to dismissal even if the corporation is a
GOCC.
Failure to attach a certified copy of the board
resolution authorizing the filing of the petition is
fatal because courts does not take judicial notice to
the corporate board resolution or authority of
corporate officer. If such power is not derived in the
resolution it must show a clear source of authority
in the articles or by-laws or implied acts.
**Service of Summons - AGENT (a business
representative whose function is to bring out,
modify, affect, accept performance of, or terminate
contractual obligations between principal and third
persons, PABON vs NLRC)
VILLA REY TRANSIT VS FAR EAST MOTOR CORP:
service must be made on a representative so
integrated with the corporation sued as to make it a
priori supposable that he will realize his
responsibilities and know what he should do with
any legal papers served on him.
Under Section 11 Rule 14 of the Rules of Court
removed the term agent to receive summons. When
the defendant is a corporation organized under the
PH law service may be made on the president,
managing partner, general manager, corporate
secretary, treasurer or in-house counsel. PABON
case no longer applies.
The president is among enumerated who can
receive summons thus he can sign ver-cer without
board resolution
*Power to Sell, Lease, Dispose or Encumber Assets –
vested through its BOD or Trustees while the
corporation may appoint agents to negotiate for the
purchase of real property, the final say will have to
be with the board whose approval will finalize the
transaction.
SEC opined the shares of stocks constitutes part of
the assets or property of the investor corporation
and cannot be legally disposed by the president
since disposition is lodged in the BOD.
*Power to Borrow or Enter into Loans – implied or
inherent power since it flows from its being granted
the capacity to contract or to obligate itself as a
juridical person and lodged in the BOD or Trustees,
exception is under Sec 38 when corporation shall
incur or increase a bounded indebtedness unless
approved by a majority vote of BOD and
stockholders.
Agents need to have special power of attorney in
order to validly borrow in behalf of the corporation
hence void even if such is in the ordinary course of
business.
*Power to Make Donations – corporation may make
reasonable donations including those for public
welfare provided that such corporation, domestic or
foreign shall give donations on aid of any political
party or candidate or for purpose of partisan
political activity.
Only reasonable donations can be made,
unreasonable would be an abuse of BOD business
judgment and breach of fiduciary relationship.
Reasonable Test means that they promote the best
interest of the corporation and its stockholders, in
the sense that the main purpose is to build the name
and goodwill of the company as a good corporate
citizen.
*Power to Grant Pension, Retirement and Other
Gratuities – engender loyalty among corporations
human resource and grants them motivation to
remain with the corporation (Officers and
Employees).
INCIDENTAL POWERS: the powers, attributes and
properties expressly authorized by law or incident to
its existence which is attached to a corporation at
the moment of its creation.
IMPLED OR NECESSARY POWERS: to exercise
powers as may be essential or necessary to carry out
its purpose as stated in the articles of incorporation.
ULTRA VIRES ACT OF THE FIRST TYPE: all acts
beyond the express, implied and incidental powers
of the corporation.
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 reasonable necessary to their existence.
DOCTRINE OF ESTOPPEL OR RATIFICATION: ultra
vires act or those which are not illegal and void ab
initio but are within the scope of the articles of
incorporation are merely voidable and may become
binding and enforceable when ratified by
stockholders. Ratification of ultra vires act cures the
infirmity of the corporate act and makes it perfectly
valid.
In case of ultra vires which are not per se illegal a
corporation cannot be heard to complain that it is
not liable because of estoppel of representation.
ILLEGAL ACTS: void ab initio.
POWER TO EXTEND OR SHORTEN CORPORATE
TERM: a private corporation may when approved by
a majority vote of the BOD or Trustees and ratified
at a meeting by the stockholders or members,
representing at least 2/3 of the outstanding capital
stock or at least 2/3 of the members in case of non-
stock corporation.
In extending corporate term, any dissenting
stockholders may exercise his appraisal right to have
his shares bought back at fair value by the
corporation, it is also available in shortening (Sec 81)
corporate term. Extension actually novates the
corporate contract with each shareholder which
seeks corporate relationship beyond original term.
POWER TO TEMPORARY CEASE CORPORATION
OPERATIONS: 2/3 vote of the outstanding capital
stock is required
POWER TO INCREASE OR DECREASE CAPITAL
STOCK: no increase or decrease unless approved by
majority vote of BOD and ratified by the
stockholders owning or representing at least 2/3 of
the outstanding capital stock at stockholders
meeting. Any increase or decrease shall require
prior approval of the SEC duly accompanied by the
sworn statement of the treasurer showing that at
least 25% of such increased of such increased capital
stock has been subscribed and that at least 25% 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 which is equal to 25% of the subscription.
POWER TO SELL, DISPOSE, LEASE OR ENCUMBER
ASSETS: may by majority vote of its BOD and with
the authorization by 2/3 of the outstanding capital
stock else board resolution.
- all or substantially all of the assets of corporation.
- substantially all when rendered incapable of
continuing the business or accomplishing the
purpose for which it is incorporated
BULK SALES LAW: it would require the seller to
execute sworn statement listing the corporate
creditors and the amount and nature of their claims,
giving notice of the sale and applying the proceeds
of the sale proportionately to the payment of the
listed obligation, failure to comply with its
requirement will render the transaction fraudulent
and void.

NO decrease shall be approved by SEC if its effect
shall prejudice rights of the corporation’s creditors.
No appraisal right in increase because it has the
potential effect of diluting stockholders
proportionate interest in the equity of corporation
No appraisal right in decrease because it would
result in returning part of the investment of the
stockholders including those who dissented.
No appraisal right on the part of the dissenting
stockholders
Any dissenting may exercise appraisal right in case
of sale of all or substantially all of the corporate
assets or property.
POWER TO INVEST CORPORATE FUNDS IN
ANOTHER CORPORATION OR BUSINESS: it may
when approved by the BOD or Trustees and ratified
by the stockholders representing at least 2/3 of the
outstanding capital stock.
POWER TO ENTER MANAGEMENT CONTRACT:

Effectivity: until approval of SEC

Special Rule on listed shares: no announcement of

an offer of rights to acquire share or to issue stick
dividends to stockholders shall be made after an
increase without a definite fixed date for the
exercise of such right or issuance of stock dividents.

POWER TO INCUR, CREATE OR INCREASE BONDED

INDEBTEDNESS: on BOD under doctrine of
centralized management and would not require
ratificatory vote.

Requirement: approval of 2/3 of the outstanding

capital stock.
It shall require SEC approval