Chapter VI – Corporate Powers General Powers of Corporations

Section 23. The board of directors or trustees. - Unless otherwise provided in this Code, the a. Express Powers
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 General
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 Section 36. Corporate powers and capacity. - Every corporation incorporated under this Code has
elected and qualified. (28a) the power and capacity:

Every director must own at least one (1) share of the capital stock of the corporation of which he 1. To sue and be sued in its corporate name;
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 2. Of succession by its corporate name for the period of time stated in the articles of
which he is a director shall thereby cease to be a director. Trustees of non-stock corporations incorporation and the certificate of incorporation;
must be members thereof. A majority of the directors or trustees of all corporations organized
under this Code must be residents of the Philippines.
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
— Primary rule: all corporate powers shall be exercised and all corporate businesses
repeal the same in accordance with this Code;
shall be conducted by the board of directors of the corporation
— Exception: specific instances where the Code requires the consent and ratification
of the SHs, particularly those where the underlying contractual relationship 6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to
between the parties: the corporation, the SHs/members, and the State, is being subscribers and to sell treasury stocks in accordance with the provisions of this Code;
amended or altered and to admit members to the corporation if it be a non-stock corporation;
— How is consent expressed by the parties?
o Corporation= through the Board 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
o State= through act of the regulatory body otherwise deal with such real and personal property, including securities and bonds of
o SHs= through majority or 2/3 vote where applicable other corporations, as the transaction of the lawful business of the corporation may
 But dissenting SHs in certain instances are given the option to reasonably and necessarily require, subject to the limitations prescribed by law and the
withdraw from the relationship through the exercise of his appraisal Constitution;
right
8. To enter into merger or consolidation with other corporations as provided in this
Code;
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 9. To make reasonable donations, including those for the public welfare or for hospital,
incorporation and except such as are necessary or incidental to the exercise of the powers so charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
conferred. (n) domestic or foreign, shall give donations in aid of any political party or candidate or for
purposes of partisan political activity;
1. A corporation has only three (3) types of power:
a. Express (Sec 36) 10. To establish pension, retirement, and other plans for the benefit of its directors,
b. Implied or Necessary trustees, officers and employees; and
c. Incidental

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 11. To exercise such other powers as may be essential or necessary to carry out its o Ratification: vote of at least 2/3 of OCS or members
purpose or purposes as stated in the articles of incorporation. (13a) o Prior approval of SEC required to take effect
o Amendment to AOI: YES
— Sources of express powers are provided for by law and those enumerated in its charter o Appraisal rights? NO
— Other express powers are in its AOI  Dissenting SH can simply sell his shares
— These are exercised by the Board  A grant of appraisal rights would defeat the purpose—to raise funds
— In the absence of authority from the Board, no person, not even the officers, can validly bind
the corporation in the exercise of express powers 3. To incur, create, or increase bonded indebtedness (38)
— Code laws down two (2) general restrictions on the power of any corporation to purchase
and hold properties Section 38. Power to increase or decrease capital stock; incur, create or increase bonded
o (1) property must be reasonable and necessarily required by the transaction of its lawful indebtedness. - No corporation shall increase or decrease its capital stock or incur, create or
business increase any bonded indebtedness unless approved by a majority vote of the board of directors
 depends on the nature of the business and, at a stockholder's meeting duly called for the purpose, two-thirds (2/3) of the outstanding
o (2) must be subject to limitations prescribed by law and the Constitution capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating
 cannot acquire available public lands except by lease of not more than 1000 or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution
hectares (consti Art XII Sec 3) of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of
 exploration, development, exploitation, etc, of natural resources= 60% the time and place of the stockholder's meeting at which the proposed increase or diminution of
Filipino-owned, and only in JV with the state the capital stock or the incurring or increasing of any bonded indebtedness is to be considered,
— General powers in Sec 36 are to be exercised by the Board of Directors in accordance with must be addressed to each stockholder at his place of residence as shown on the books of the
Sec 23 (except where otherwise provided) corporation and deposited to the addressee in the post office with postage prepaid, or served
personally.
Specific Powers
A certificate in duplicate must be signed by a majority of the directors of the corporation and
1. To extend or shorten the corporate term (37) countersigned by the chairman and the secretary of the stockholders' meeting, setting forth:

(1) That the requirements of this section have been complied with;
Section 37. Power to extend or shorten corporate term. - A private corporation may extend or
shorten its term as stated in the articles of incorporation when approved by a majority vote of the (2) The amount of the increase or diminution of the capital stock;
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 (3) If an increase of the capital stock, the amount of capital stock or number of shares of
the meeting shall be addressed to each stockholder or member at his place of residence as shown no-par stock thereof actually subscribed, the names, nationalities and residences of the
on the books of the corporation and deposited to the addressee in the post office with postage persons subscribing, the amount of capital stock or number of no-par stock subscribed
prepaid, or served personally: Provided, That in case of extension of corporate term, any by each, and the amount paid by each on his subscription in cash or property, or the
dissenting stockholder may exercise his appraisal right under the conditions provided in this code. amount of capital stock or number of shares of no-par stock allotted to each stock-
(n) holder if such increase is for the purpose of making effective stock dividend therefor
authorized;
— Sec 37: extension or shortening of term of existence
o Vote required: majority of board (4) Any bonded indebtedness to be incurred, created or increased;
o Ratification: vote of at least 2/3 of OCS or members
o Amendment to AOI: YES (5) The actual indebtedness of the corporation on the day of the meeting;
o Appraisal rights? YES (37 & 81)
(6) The amount of stock represented at the meeting; and
2. To increase or decrease capital stock (38)

o Vote required: majority of board (7) The vote authorizing the increase or diminution of the capital stock, or the incurring,

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 creating or increasing of any bonded indebtedness. 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
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded (2/3) of the outstanding capital stock, in exchange for property needed for corporate purposes or
indebtedness shall require prior approval of the Securities and Exchange Commission. in payment of a previously contracted debt.

5. To sell or otherwise dispose of substantially all its assets (40)

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 Section 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on
issuance by the Commission of its certificate of filing, the capital stock shall stand increased or illegal combinations and monopolies, a corporation may, by a majority vote of its board of
decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or
certificate of filing may declare: Provided, That the Securities and Exchange Commission shall substantially all of its property and assets, including its goodwill, upon such terms and conditions
not accept for filing any certificate of increase of capital stock unless accompanied by the sworn and for such consideration, which may be money, stocks, bonds or other instruments for the
statement of the treasurer of the corporation lawfully holding office at the time of the filing of the payment of money or other property or consideration, as its board of directors or trustees may
certificate, showing that at least twenty-five (25%) percent of such increased capital stock has deem expedient, when authorized by the vote of the stockholders representing at least two-thirds
been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been (2/3) of the outstanding capital stock, or in case of non-stock corporation, by the vote of at least to
paid either in actual cash to the corporation or that there has been transferred to the corporation two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the
property the valuation of which is equal to twenty-five (25%) percent of the subscription: purpose. Written notice of the proposed action and of the time and place of the meeting shall be
Provided, further, That no decrease of the capital stock shall be approved by the Commission if its addressed to each stockholder or member at his place of residence as shown on the books of the
effect shall prejudice the rights of corporate creditors. 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.
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. 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.
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)
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
— Sec 38: incur, create, or increase bonded indebtedness
or other disposition of property and assets, subject to the rights of third parties under any contract
o Bonded indebtedness: covers indebtedness of the corporation which are
relating thereto, without further action or approval by the stockholders or members.
secured by mortgage on real or personal property (does not include
debentures)
o Vote required: majority vote of the board Nothing in this section is intended to restrict the power of any corporation, without the
o Ratification: vote of at least 2/3 OCS or members authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge or
o Prior approval of SEC required otherwise dispose of any of its property and assets if the same is necessary in the usual and regular
o Appraisal rights? NONE 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.
4. To deny preemptive right (39)
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.
Section 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 proportion to
— Sec 40: power to sell, dispose, lease, or encumber all or substantially all assets
their respective shareholdings, unless such right is denied by the articles of incorporation or an
o Vote required: majority vote of the board
amendment thereto: Provided, That such pre-emptive right shall not extend to shares to be issued
o Ratification: vote of at least 2/3 OCS or members
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 o Nature of transactions covered: onerous contracts the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles
o Transactions no covered by SH vote: (does not involve the corporate purpose, of incorporation, the approval of the stockholders or members shall not be necessary. (17 1/2a)
but the corporate business)
 Necessary in the usual and regular course of business, or… — Sec 42: power to invest in another corporation
 … proceeds of disposition is appropriate for the conduct of o Vote required: majority of the board
remaining business o Ratification: vote of at least 2/3 OCS or members
o “substantially all” property/assets:  EXCEPT: where the investment is reasonably necessary to
 if disposition renders corporation incapable of doing business accomplish its PRIMARY PURPOSE
 if disposition renders corporation incapable of accomplishing its  If secondary purpose, ratificatory vote is required
purpose in the AOI o Effect of ratification: corporation can now legally invest its funds OUTSIDE
 appraisal right? YES of its primary purpose, but LIMITED to its secondary purpose
o Coverage of “funds”—any corporate property to be used to further its
6. To acquire its own shares (41)
business
o No ratificatory vote: ULTRA VIRES
Section 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 8. To declare dividends (43)
to the following cases: Provided, That the corporation has unrestricted retained earnings in its
books to cover the shares to be purchased or acquired:
Section 43. Power to declare dividends. - The board of directors of a stock corporation may
declare dividends out of the unrestricted retained earnings which shall be payable in cash, in
1. To eliminate fractional shares arising out of stock dividends; property, or in stock to all stockholders on the basis of outstanding stock held by them: Provided,
That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent
in a delinquency sale, and to purchase delinquent shares sold during said sale; and stockholder until his unpaid subscription is fully paid: Provided, further, That no stock dividend
shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of
the outstanding capital stock at a regular or special meeting duly called for the purpose. (16a)
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the
provisions of this Code. (a)
Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%)
— Sec 41: power to purchase own shares percent of their paid-in capital stock, except: (1) when justified by definite corporate expansion
o Corporation must first have unrestricted retained earnings projects or programs approved by the board of directors; or (2) when the corporation is prohibited
o But redeemable shares may be acquired even without unrestricted retained under any loan agreement with any financial institution or creditor, whether local or foreign, from
declaring dividends without its/his consent, and such consent has not yet been secured; or (3)
earnings (Sec 8)
when it can be clearly shown that such retention is necessary under special circumstances
obtaining in the corporation, such as when there is need for special reserve for probable
7. To invest in another corporation or business (42)
contingencies. (n)
Section 42. Power to invest corporate funds in another corporation or business or for any other
— Sec 43: power to declare dividends out of restricted retained earnings
purpose. - Subject to the provisions of this Code, a private corporation may invest its funds in any
o Payable in cash, property, or stock
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 o Cash dividends due on unpaid stock shall be applied to the unpaid balance on
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least the subscription plus costs and expenses
two thirds (2/3) of the members in the case of non-stock corporations, at a stockholder's or o Primary of SHs to DEMAND dividends
member's meeting duly called for the purpose. Written notice of the proposed investment and the o Vote required: majority of the board
time and place of the meeting shall be addressed to each stockholder or member at his place of o Ratification: vote of at least 2/3 of OCS or members
residence as shown on the books of the corporation and deposited to the addressee in the post o Cannot retain surplus profits in excess of 100% of paid up capital stock
office with postage prepaid, or served personally: Provided, That any dissenting stockholder shall o Exception:
have appraisal right as provided in this Code: Provided, however, That where the investment by

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  When justified by definite corporate expansion projects approved  if managing other corporations is the primary purpose, ratificatory
by the board vote is not required!
 When prohibited under any loan agreement  If managing a partnership or individual not a corporation, not
 When it is clear that the retention is necessary under special covered!
circumstances
o Surplus profits in excess of 100%= distribute as dividends
10. To buy the shares of another corporation (36) provided:
9. To enter into management contracts (44) a. Reasonably necessary for its lawful business
b. The other corporation must be engaged in an allied business or not alien to
Section 44. Power to enter into management contract. - No corporation shall conclude a the purposes of the purchasing corporation (42)
management contract with another corporation unless such contract shall have been approved by — This means a corporation can enter into a joint venture with another person,
the board of directors and by stockholders owning at least the majority of the outstanding capital partnership or another corporation
stock, or by at least a majority of the members in the case of a non-stock corporation, of both the — But a corporation cannot enter into a partnership contract
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 11. Power to enter into a partnership
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 — GR: corporation cannot enter into partnerships with other corporations or with
board of directors of the managed corporation, then the management contract must be approved individuals
by the stockholders of the managed corporation owning at least two-thirds (2/3) of the total — Exception: expressly allowed by statute or charter
outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the case o Joint ventures
of a non-stock corporation. No management contract shall be entered into for a period longer than o Limited partnerships (US Law)
five years for any one term.
b. Implied or Necessary Powers
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,
GR: all acts other than those specified in Sec 36-44 and in other special provisions would be ultra
whether such contracts are called service contracts, operating agreements or otherwise: Provided,
vires
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
Exception: those which are:
as may be provided by the pertinent laws or regulations. (n)
— necessary or incidental to the exercise of the powers so conferred (45), or
— essential or necessary to carry out its purpose or purposes as stated in the AOI.
— Sec 44: power to enter into a management contract (38)
o Vote required: majority of the board
o Ratification: vote of at least 2/3 of OCS or members, but… Presumption that a corporation can act within its powers and when a contract is not on its face
o Special rule: vote of SH of MANAGED corporation owning at least 2/3 of necessarily beyond its authority, it will, in the absence of proof to the contrary, presumed to be
TOTAL outstanding stock or members entitled to vote, iff: valid.
 SH(s) representing the same interest in both managed and
managing corporations own or control more than 1/3 of TOTAL — Sec 36(11): corporations have the power and capacity to exercise such other
outstanding capital stock, or… powers as may be essential or necessary to carry out its purpose(s) as provided for
 … majority of Board of directors of the MANAGING corporation in the AOI
also constitute a MAJORITY of the board in the MANAGED o Restated: the management of a corporation has discretionary authority, in the
o rationale for the special rule: entering into a management contract is a absence of explicit restrictions, to enter into contracts or transactions deemed
deviation from the GR that the board manages the corporation and that the reasonably necessary or incidental to its business purposes.
board of the managing company should devote its affairs to its own
corporation c. Incidental Powers
o Not covered by Sec 44:

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 — Sec 2: powers, attributes, and properties expressly authorized by law or b. Exception: ratification by the Board or estoppel
incident to its existence c. Primary rule: In the absence of an authority from the board, no person, not
— Incidental powers: those that attach to a corporation at the moment of its even the officers, can validly bind the corporation
creation without regard to its express powers or particular primary purpose, d. Exception:
and is inherent in it as a legal entity i. Doctrine of apparent authority: in dealing with corporations, the
— Examples: public at large is bound to rely upon outward appearances, and
i. To sue and be sued relying on such, if it be found that the directors permitted the agent
ii. To grant and receive in the corporate name to hold himself out as having authority to bind or acquiesced in the
iii. To purchase hold and convey real and personal property for its contract and accepted the benefits therefrom, the corporation will
purposes be bound. (Ramirez v Orientalist)
iv. To have a corporate seal 1. Public is not expected to know what goes on inside the
v. To adopt and amend by-laws for its government boardroom, or cannot be required to look beyond the
vi. To disenfranchise or remove members officers acting for a corporation
— Powers that go into the very nature and extent of a corporation’s juridical 2. If the corporation desires to set up the defense of lack of
entity cannot be presumed to be incidental or inherent powers authority, it must plead and prove it…
3. …but once it discharges that duty, then the burden of
proof shifts to the agent to proof that by previous acts of
the corporation he had been clothed with apparent
The Ultra Vires Doctrine authority
(3) acts or contracts which are per se illegal
Section 45. Ultra vires acts of corporations. - No corporation under this Code shall possess or a. cannot be given effect and are void
exercise any corporate powers except those conferred by this Code or by its articles of i. but in Harden, the Court upheld a patently void contract as between
incorporation and except such as are necessary or incidental to the exercise of the powers so the contracting parties; a narrow exception is made in that since the
conferred. (n) violation of the particular law pertains to public policy concerns
and may only be proceeded through a quo warranto, not by any of
the parties
— Sec 45 embodies the ultra vires doctrine
ii. thus if no civil wrong was committed, the courts will leave the
— Based on two (2) principles:
1. Corporation is a creature of law and has only such powers and privileges as are granted by parties as they were (Harden)
b. ultra vires acts which are NOT per se illegal are merely voidable can be
the State
ratified by the SHs (Pirovano)
2. The doctrine upholds the duty of trust and obedience owed by the corporation’s directors
i. it cures the infirmity and makes it perfectly valid and enforceable,
and officers to the SHs
provided that it prejudices no creditors and if it has been partially
a. Defense of ultra vires rests on the violation of trust or duty towards SHs, and
executed and not merely executory
should not be entertained where its allowance will do greater wrong to innocent
1. ratification may be by express act of the SH (if the act is
3rd parties
by the Board) or the Board (if the act is by the officers)…
2. …or impliedly through acceptance of benefits…
Three (3) types of ultra vires acts:
3. …or through estoppel on the part of the Board or the
(1) acts beyond the powers of the corporation as stipulated in the law or AOI. The TEST:
officers
logical relation of the act to the corporate purpose:
a. W/N the act is in direct and immediate furtherance of the corporation’s
Corporations are now more of a product of the agreement of the incorporating parties rather than
business
a mere “creature of the State:”
b. W/N the act is fairly incident to the express powers and reasonably necessary
for its exercise
— Sec 10 allows 5 or more persons to form a private corporation for any lawful
(2) acts or contracts entered in behalf of the corporation by persons without corporate
purpose/s
authority
— Sec 36 par 11 allows every corporation the power to exercise such other powers as
a. GR: only acts of corporate officers within the scope of their authority are
may be essential or necessary to carry out the purpose/s in the AOI
binding on the corporation; acts beyond the authority cannot bind the
— The corporation’s powers depends on its purpose in the AOI
corporation

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 — Since parties are entirely free to insert any number of purposes in its AOI, it acts that may be performed outside the scope of the powers expressly conferred if they are
follows that the extent of the corporation’s powers depends largely on their necessary to promote the interest and welfare of the corporation.”
agreement, and not merely on a direct grant from the State, unless of course the
purposes are illegal. Even in the case of ultra vires acts which are not illegal per se, a corporation cannot be heard to
— Instances where an act can or cannot be reasonably implied from the purposes due complain that it is not liable for the acts of its board, because of estoppel by representation. The
to poor draftsmanship or lack of foresight of the drafters, the purpose clause may term ultra vires should be distinguished from an illegal act for the former is merely voidable
be reasonably stretched to accommodate the new and unexpected situations, which may be enforced by performance, ratification, or estoppel, while the latter is void and
otherwise, a proper amendment of the AOI would be necessary. cannot be invalidated. It being merely voidable, an ultra vires act can be enforced or validated if
there are equitable grounds for taking such action. In this case, it is fair that the resolution be
Legal consequences of acts clearly beyond the powers of the corporation or ultra vires? upheld at least on the ground of estoppel.

— On the corporation: The defense of ultra vires rests on violation of trust or duty towards the stockholders, and should
o if the act is illegal, involuntary dissolution under a quo warranto proceeding not be entertained where its allowance will do greater wrong to innocent parties dealing with the
by the SolGen corporation. The acceptance of benefits arising from the performance of the other party gives rise
o revocation or suspension of the certificate of registration by the SEC to an estoppel precluding the repudiation of the contract.
— On the parties to the ultra vires contract:
o Parties are “left as they are” and no rescission would lie.
o Where there has been partial performance by one party, and the other has not, Napocor v Vera. Sea Lion is a port and arrastre operator with a contract for stevedoring services
the latter, having benefited from the performance, is estopped from claiming with NPC which had already expired. Its PPA permit for cargo handling services at the NPC
ultra vires Calaca pier had expired as well. Napocor did not renew Sea Lion’s contract for Stevedoring
— On the rights of stockholders: Services for Coal-Handling Operations at Calaca plant, and took over its stevedoring services
o A stockholder can file an individual or derivative suit to enjoin a threatened pursuant to a provision in its charter, “[t[o exercise such powers and do such things as may be
ultra vires act or contract or a derivative suit for damages if the contract has reasonably necessary to carry out the business and purposes for which it was organized, or which,
been performed from time to time, may be declared by the Board to be necessary, useful, incidental or auxiliary to
o Liability would depend on whether the contracting parties acted in GF and accomplish said purpose.” Sea Lion sues, alleging that NPC had acted in bad faith and with grave
abuse of discretion in not renewing its Contract for Stevedoring Services for Coal-Handling
with reasonable diligence; an honest mistake would not give rise to liability
Operations at the Calaca plant, and in taking over its stevedoring services. Judge Vera, acting on
— If action is based on tort, the stockholders cannot set up the defense of ultra vires
against the injured party who had no knowledge that the corporation was engaging Sea Lion’s suit, issued a writ of preliminary injunction enjoining NPC from further undertaking
stevedoring and arrastre services in its pier located at the Batangas Coal-Fired Thermal Power
in an act not included expressly or impliedly in its purpose clause.
Plant at Calaca, Batangas and directing it either to enter into a contract for stevedoring and
arrastre services or to conduct a public bidding therefor. Sea Lion was also allowed to continue
stevedoring and arrastre services at the pier.
RP v Acoje Mining. F: Acoje Mining requested the opening of a post office at its mining camp
in Zambales to service employees living in the camp. The Director of Posts agreed to set up the
office, provided that in the meantime that funds are not available, the company would provide for H: In determining whether or not the act of NPC falls within the purview of the charter which
all essential equipment and assign a responsible employee to perform the duties of a postmaster. creates it, the Court must decide whether or not a logical and necessary relation exists between
He also added that the company shall assume direct responsibility for whatever pecuniary loss the act questioned and the corporate purpose expressed in the NPC charter. For if that act is one
may be suffered by the Bureau of Posts by reason of the dishonesty or negligence of the which is lawful in itself and not otherwise prohibited, and is done for the purpose of serving
employee assigned. A Resolution by the Acoje Board of Directors was passed. The postmaster corporate ends, and reasonably contributes to the promotion of those ends in a substantial and not
assigned, Hilario Sanchez, went on leave and never returned. It was soon discovered that a in a remote and fanciful sense, it may be fairly considered within the corporation's charter
shortage was incurred iao P13,867.24, apparently embezzled by Sanchez. Bureau of Posts sues powers. A pier located at Calaca, Batangas, which is owned by NPC, receives the various
for the shortage. Acoje denied its liability contending that the resolution issued by the board was shipments of coal which is used exclusively to fuel the Batangas Coal-Fired Thermal Power Plant
ultra vires, and its liability if any would only be that of a guarantor. of the NPC for the generation of electric power. The stevedoring services which involve the
unloading of the coal shipments into the NPC pier for its eventual conveyance to the power plant
H: It should be noted that it was Acoje itself that requested for the setting up of a post office for are incidental and indispensable to the operation of the plant. The Court holds that NPC is
the convenience of its employees, which the SC held to cover a subject which is “a reasonable empowered under its Charter to undertake such services, it being reasonably necessary to the
and proper adjunct to the conduct of the business of Acoje Mining.” An ultra vires act is one operation and maintenance of the power plant. This Court is, guided by the case of Republic of
committed outside the object for which a corporation is created, but there are certain corporate the Philippines v. Acoje Mining Company, Inc., where the Court affirmed the rule that a

7
corporation is not restricted to the exercise of powers expressly conferred upon it by its charter, shareholder, the dividends paid to it were its own money, which may then be available for wage
but has the power to do what is reasonably necessary or proper to promote the interest or welfare increments. It is not a case of a corporation distributing dividends in favor of its stockholders, in
of the corporation. Whether NPC will enter into a contract for stevedoring and arrastre services to which case, such dividends would be the absolute property of the stockholders and hence, out of
handle its coal shipments to its pier, or undertake the services itself, is entirely and exclusively reach by creditors of the corporation. Here, the petitioner was acting as stockholder itself, and in
within its corporate discretion. It does not involve a duty the performance of which is enjoined by that case, the right to a share in such dividends, by way of salary increases, may not be denied its
law. Thus, the courts cannot direct the NPC in the exercise of this prerogative. employees.

Madrigal & Co v Zamora. Madrigal & Co was engaged in the management of Rizal Cement Accordingly, this court is convinced that the petitioner's capital reduction efforts were, to begin
Co., Inc. and is also its sister company, both being owned by the same or practically the same with, a subterfuge, a deception as it were, to camouflage the fact that it had been making profits,
stockholders. The Madrigal Central Office Employees Union sought for the renewal of its and consequently, to justify the mass layoff in its employee ranks, especially of union members.
collective bargaining agreement and proposed a wage increase of P200.00 a month, an allowance They were nothing but a premature and plain distribution of corporate assets to obviate a just
of P100.00 a month, and other economic benefits. Madrigal requested for a deferment in the sharing to labor of the vast profits obtained by its joint efforts with capital through the years.
negotiations. Surely, we can neither countenance nor condone this. It is an unfair labor practice.

Thereafter, Madrigal on two occasions reduced its capital stock from 765,000 shares to 267,366
shares and from 267,366 shares to 110,085 shares by virtue of two alleged resolutions of its Gov’t of Philippines v El Hogar. This is a quo warranto proceeding, alleging 17 causes of
stockholders, which was effected through the distribution of the marketable securities owned by action, instituted originally in this court by the Government of the Philippine Islands on the
the petitioner to its stockholders in exchange for their shares in an equivalent amount in the relation of the Attorney-General against the building and loan association known as El Hogar
corporation. Filipino, for the purpose of depriving it of its corporate franchise, excluding it from all corporate
rights and privileges, and effecting a final dissolution of said corporation. The respondent, El
The Union filed a case for ULP with the NLRC. Madrigal answered citing operational losses. Hogar Filipino, was apparently the first corporation organized in the Philippine Islands under the
Madrigal then informed the Secretary of Labor that Rizal Cement Co., Inc., "from which it provisions cited, and the association has been favored with extraordinary success. The articles of
derives income as the General Manager or Agent" had "ceased operating temporarily. In addition, incorporation bear the date of December 28, 1910, at which time capital stock in the association
because of the desire of the stockholders to phase out the operations of the Madrigal & Co., Inc. had been subscribed to the amount of P150,000 of which the sum of P10,620 had been paid in.
due to lack of business incentives and prospects, and in order to prevent further losses," it had to Under the law as it then stood, the capital of the Association was not permitted to exceed
reduce its capital stock on two occasions. The labor arbiter, having found that the petitioner "had P3,000,000, but by Act No. 2092, passed December 23, 1911, the statute was so amended as to
been making substantial profits in its operation" since 1972 through 1975, granted the wage permit the capitalization of building and loan associations to the amount of ten millions. Soon
increase, and was affirmed by NLRC. Meanwhile Madrigal tried to terminate the services of thereafter the association took advantage of this enactment by amending its articles so as to
Union members citing retrenchment but its application was declared illegal by DOLE. Upon provide that the capital should be in an amount not exceeding the then lawful limit. From the time
appeal to OP, Ronaldo Zamora affirmed the decision of DOLE. of its first organization the number of shareholders has constantly increased, with the result that
on December 31, 1925, the association had 5,826 shareholders holding 125,750 shares, with a
total paid-up value of P8,703,602.25. During the period of its existence prior to the date last
H: What clearly emerges from the recorded facts is that the petitioner, awash with profits from its above-mentioned the association paid to withdrawing stockholders the amount of P7,618,257,.72;
business operations but confronted with the demand of the union for wage increases, decided to and in the same period it distributed in the form of dividends among its stockholders the sum of
evade its responsibility towards the employees by a devised capital reduction. While the reduction P7,621,565.81.
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 I: W/N El Hogar is illegally holding title to real property in excess of 5 years, in violation of the
petitioner company's piling profits, the unionists had the right to demand for such salary law that while corporations may loan funds upon real estate security, they shall dispose of the
adjustments. That the petitioner made quite handsome profits is clear from the records. We agree same within 5 years after receiving title
with the National Labor Relations Commission that "[t]he dividends received by the company are H: the corporation has not been shown to have offended against the law in a manner which would
corporate earnings arising from corporate investment." 42 Indeed, as found by the Commission, entail forfeiture of its charter. The evident purpose behind the law restricting the rights of
the petitioner had entered such earnings in its financial statements as profits, which it would not corporations with respect to the tenure of land was to prevent the revival of the entail or other
have done if they were not in fact profits. 43 similar institution by which land could be fettered and its alienation hampered. In the case, El
Hogar had in GF disposed of the property at the expiration of the period fixed by law. Under the
Moreover, it is incorrect to say that such profits — in the form of dividends — are beyond the circumstances the destruction of the corporation would bring irreparable loss upon thousands of
reach of the petitioner's creditors since the petitioner had received them as compensation for its innocent shareholders of the corporation without any corresponding benefit to the public.
management services in favor of the companies it managed as a shareholder thereof. As such
8
I: W/N el Hogar is illegally owning and holding a business lot in excess of the reasonable these activities are necessary to the exercise of any of the granted powers. The corporation, upon
requirements and in contravention of the Corpo law that every corporation has the power to the point now under the criticism, has clearly extended itself beyond the legitimate range of its
purchase hold lease real property as reasonable and necessary required for the transaction of the powers. But it does not result that the dissolution of the corporation is in order, and it will merely
lawful business be enjoined from further activities of this sort.
H: The law expressly declares that corporations may acquire such real estate as is reasonably
necessary to enable them to carry out the purposes for which they were created; and we are of the I: W/N the royalty paid to the founder of el Hogar, Antonio Melian, as compensation for his
opinion that the owning of a business lot upon which to construct and maintain its offices is services rendered by him during the early stages of the organization of the corporation, is
reasonably necessary to a building and loan association such as the respondent was at the time unconscionable, excessive, and thus necessitates dissolution
this property was acquired. A different ruling on this point would compel important enterprises to H: No possible doubt exists as to the power of a corporation to contract for services rendered and
conduct their business exclusively in leased offices — a result which could serve no useful end to be rendered by a promoter in connection with organizing and maintaining the corporation. It is
but would retard industrial growth and be inimical to the best interests of society. We are true that contracts with promoters must be characterized by good faith; but could it be said with
furthermore of the opinion that, inasmuch as the lot referred to was lawfully acquired by the certainty, in the light of facts existing at the time this contract was made, that the compensation
respondent, it is entitled to the full beneficial use thereof. No legitimate principle can discovered therein provided was excessive? If the amount of the compensation now appears to be a subject
which would deny to one owner the right to enjoy his (or its) property to the same extent that is of legitimate criticism, this must be due to the extraordinary development of the association in
conceded to any other owner. recent years. If the Melian contract had been clearly ultra vires — which is not charged and is
certainly untrue — its continued performance might conceivably be enjoined in such a
I: W/N el Hogar has engaged in activities foreign to the purposes for which the corporation was proceeding as this; but if the defect from which it suffers is mere matter for an action because
created and not reasonably necessary to its legitimate ends, specifically: (1) the administration of Melian is not a party. It is rudimentary in law that an action to annul a contract cannot be
the offices in the El Hogar building not used by the respondent itself and the renting of such maintained without joining both the contracting parties as defendants. Moreover, the proper party
offices to the public; (2) the administration and management of properties belonging to to bring such an action is either the corporation itself, or some shareholder who has an interest to
delinquent shareholders of the association; (3) the management of some parcels of improved real protect.
estate situated in Manila not under mortgage to it, but owned by shareholders, and has held itself
out by advertisement as prepared to do so I: W/N el Hogar had abused its franchise in issuing special shares, which is alleged to be illegal
H: (1) The activities here criticized clearly fall within the legitimate powers of the respondent, as and inconsistent with the plan and purposes of building and loan associations,and that these are
shown in what we have said above relative to the second cause of action. This matter will held by well-to-do people purely for investment purposes and not by wage-earners for savings
therefore no longer detain us. If the respondent had the power to acquire the lot, construct the H: The ground for supposing the issuance of the "special" shares to be unlawful is that special
edifice and hold it beneficially, as there decided, the beneficial administration by it of such parts shares are not mentioned in the Corporation Law as one of the forms of security which may be
of the building as are let to others must necessarily be lawful. issued by the association. Upon examination of the nature of the special shares in the light of
(2) The case for the government supposes that the only remedy which the respondent has in case American usage, it will be found that said shares are precisely the same kind of shares that, in
of default on the part of its shareholders is to proceed to enforce collection of the whole loan in some American jurisdictions, are generally known as advance payment shares; in if close
the manner contemplated in section 185 of the Corporation Law. It will be noted, however, that, attention be paid to the language used in the last sentence of section 178 of the Corporation Law,
according to said section, the association may treat the whole indebtedness as due, "at the option it will be found that special shares where evidently created for the purpose of meeting the
of the board of directors," and this remedy is not made exclusive. We see no reason to doubt the condition cause by the prepayment of dues that is there permitted. The language of this provision
validity of the clause giving the association the right to take over the property which constitutes is as follow "payment of dues or interest may be made in advance, but the corporation shall not
the security for the delinquent debt and to manage it with a view to the satisfaction of the allow interest on such advance payment at a greater rate than six per centum per annum nor for a
obligations due to the debtor than the immediate enforcement of the entire obligation, and the longer period than one year." In one sort of special shares the dues are prepaid to the extent of
validity of the clause allowing this course to be taken appears to us to be not open to doubt. P160 per share; in the other sort prepayment is made in the amount of P10 per share, and the
(3) The practice described in the passage above quoted from the agreed facts is in our opinion subscribers assume the obligation to pay P10 monthly until P160 shall have been paid.
unauthorized by law. The administration of property in the manner described is more befitting to
the business of a real estate agent or trust company than to the business of a building and loan It will escape notice that the provision quoted say that interest shall not be allowed on the
association. The practice to which this criticism is directed relates of course solely to the advance payments at a greater rate than six per centum per annum nor for a longer period than
management and administration of properties which are not mortgaged to the association. The one year. The word "interest " as there used must be taken in its true sense of compensation for
circumstance that the owner of the property may have been required to subscribe to one or more the used of money loaned, and it not must not be confused with the dues upon which it is
shares of the association with a view to qualifying him to receive this service is of no contemplated that the interest may be paid. Now, in the absence of any showing to the contrary,
significance. It is a general rule of law that corporations possess only such express powers. The we infer that no interest is ever paid by the association in any amount for the advance payments
management and administration of the property of the shareholders of the corporation is not made on these shares; and the reason is to be found in the fact that the participation of the special
expressly authorized by law, and we are unable to see that, upon any fair construction of the law, shares in the earnings of the corporation, in accordance with section 188 of the Corporation Law,

9
sufficiently compensates the shareholder for the advance payments made by him; and no other Moreover, it is said that the practice of the association in declaring regularly a 10 per cent
incentive is necessary to induce inventors to purchase the stock. dividend is in effect a guaranty by the association of a fixed dividend which is contrary to the
intention of the statute. The government insists upon an interpretation of section 188 of the
It will be observed that the final 20 per centum of the par value of each special share is not paid Corporation Law that is altogether too strict and literal. From the fact that the statute provides
for by the shareholder with funds out of the pocket. The amount is satisfied by applying a portion that profits and losses shall be annually apportioned among the shareholders it is argued that all
of the shareholder's participation in the annual earnings. But as the right of every shareholder to earnings should be distributed without carrying anything to the reserve. But it will be noted that it
such participation in the earnings is undeniable, the portion thus annually applied is as much the is provided in the same section that the profits and losses shall be determined by the board of
property of the shareholder as if it were in fact taken out of his pocket. It follows that the mission directors: and this means that they shall exercise the usual discretion of good businessmen in
of the special shares does not involve any violation of the principle that the shares must be sold at allocating a portion of the annual profits to purposes needful to the welfare of the association.
par. The law contemplates the distribution of earnings and losses after other legitimate obligations
have been met. Our conclusion is that the respondent has the power to maintain the reserves
From what has been said it will be seen that there is express authority, even in the very letter of criticized in the eleventh and twelfth counts of the complaint; and at any rate, if it be supposed
the law, for the emission of advance-payment or "special" shares, and the argument that these that the reserves referred to have become excessive, the remedy is in the hands of the Legislature.
shares are invalid is seen to be baseless. In addition to this it is satisfactorily demonstrated in It is no proper function of the court to arrogate to itself the control of administrative matters
Severino vs. El Hogar Filipino, supra, that even assuming that the statute has not expressly which have been confided to the discretion of the board of directors. The causes of action under
authorized such shares, yet the association has implied authority to issue them. The complaint discussion must be pronounced to be without merit.
consequently fails also as regards the stated in the ninth cause of action.
I: W/n el Hogar illegally departed from its charter because it has made loans which were intended
I: W/n El Hogar is pursuing illegally a policy of depreciating, at an excessive rate at the discretion to be used by the borrowers for other purposes than the building of homes. There is no statute
of its Board, the value of real properties acquired by it at its sales, thereby frustrating the right of here expressly declaring that loans may be made by these associations solely for the purpose of
SHs to participate annually and equally in the earnings. building homes. On the contrary, the building of homes is mentioned in section 171 of the
H: This count for the complaint proceeds, in our opinion, upon an erroneous notion as to what a Corporation Law as only one among several ends which building and loan associations are
court may do in determining the internal policy of a business corporation. If the criticism designed to promote. Furthermore, section 181 of the Corporation Law expressly authorities the
contained in the brief of the Attorney-General upon the practice of the respondent association Board of directors of the association from time to time to fix the premium to be charged. In the
with respect to depreciation be well founded, the Legislature should supply the remedy by brief of the plaintiff a number of excerpts from textbooks and decisions have been collated in
defining the extent to which depreciation may be allowed by building and loan associations. which the idea is developed that the primary design of building and loan associations should be to
Certainly this court cannot undertake to control the discretion of the board of directors of the help poor people to procure homes of their own. This beneficent end is undoubtedly served by
association about an administrative matter as to which they have legitimate power of action. The these associations, and it is not to be denied that they have been generally fostered with this end
tenth cause of action is therefore not well founded. in view. But in this jurisdiction at least the lawmaker has taken care not to limit the activities of
building and loan associations in an exclusive manner, and the exercise of the broader powers
I: W/n el Hogar’s charter should be revoked because it illegally maintains excessive reserve funds must in the end approve itself to the business community.
and because it pursues a policy, allegedly unlawful, of paying a straight annual dividend of 10%
regardless of losses suffered and profits made by the corporation and in violation of the I: W/n the el Hogar charter may be revoked because various loans now outstanding have been
requirement s of the corpo code. made by the respondent to corporations and partnerships, and that these entities have in some
H: It is insisted in the brief of the Attorney-General that the maintenance of reserve funds is instances subscribed to shares in the respondent for the sole purpose of obtaining such loans, and
unnecessary in the case of building and loan associations, and at any rate the keeping of reserves that some of these juridical entities became shareholders merely for the purpose of qualifying
is inconsistent with section 188 of the Corporation Law. Upon careful consideration of the themselves to take loans from the association.
questions involved we find no reason to doubt the right of the respondent to maintain these H: the Corporation Law declares that "any person" may become a stockholder in building and
reserves. It is true that the corporation law does not expressly grant this power, but we think it is loan associations. The word "person" appears to be here used in its general sense, and there is
to be implied. It is a fact of common observation that all commercial enterprises encounter nothing in the context to indicate that the expression is used in the restricted sense of both natural
periods when earnings fall below the average, and the prudent manager makes provision for such and artificial persons, as indicated in section 2 of the Administrative Code. We would not say that
contingencies. To regard all surplus as profit is to neglect one of the primary canons of good the word "person" or persons," is to be taken in this broad sense in every part of the Corporation
business practice. Building and loan associations, though among the most solid of financial Law. For instance, it would seem reasonable to say that the incorporators of a corporation ought
institutions, are nevertheless subject to vicissitudes. Fluctuations in the dividend rate are highly to be natural persons, although in section 6 it is said that five or more "persons", although in
detrimental to any fiscal institutions, while uniformity in the payments of dividends, continued section 6 it is said that five or more "persons," not exceeding fifteen, may form a private
over long periods, supplies the surest foundations of public confidence. corporation. But the context there, as well as the common sense of the situation, suggests that
natural persons are meant. When it is said, however, in section 173, that "any person" may

10
become a stockholder in a building and loan association, no reason is seen why the phrase may P400K would amount to a total of P1.44M. Thus the voting strength of the Pirovano children
not be taken in its proper broad sense of either a natural or artificial person. At any rate the would be twice as much as that of the dela Rama sisters. The old Resolution having been
question whether these loans and the attendant subscriptions were properly made involves a nullified, the Board adopted a new BR changing the form of the donation from 4000 shares into a
consideration of the power of the subscribing corporations and partnerships to own the stock and renunciation of the Company’s right and title to the life insurance policies of Pirovano. It also
take the loans; and it is not alleged in the complaint that they were without power in the premises. provides that the proceeds of the policy be retained by the Company as a loan drawing interest
Of course the mere motive with which subscriptions are made, whether to qualify the payable to the Pirovano children whenever the company is in a position to meet this financial
stockholders to take a loan or for some other reason, is of no moment in determining whether the obligation and after the Company settles its bonded indebtedness ifo NDC. This was ratified by
subscribers were competent to make the contracts. The result is that we find nothing in the the Dela Rama stockholders. Mrs Pirovano accepted the donation, and buys property in the US.
allegations of the sixteenth cause of action, or in the facts developed in connection therewith, that Upon inquiry with the Sec, it was found that the donation was illegal and thus void on the
would justify us in granting the relief. grounds that the corporation acted ultra vires and that it could not dispose of its assets through
donation. The stockholders then voted to revoke the donation. Mrs Pirovano sued to demand the
I: W/n el Hogar, in disposing of real estate purchased in the collection of defaulted loans, on credit owed to them by the Company.
credit at first and then sold and mortgaged to el Hogar to secure payment of the purchase price,
had incurred several outstanding loans, and that that the persons and entities to which said I: w/n the donation by the corporation of the proceeds of the insurance is an ultra vires act
properties are sold under the condition charged are not members or shareholders nor are they
made members or shareholders of the defendant. H: Under the AOI of Dela Rama Steamship it is provided under (g) that the company may invest
H: This part of the complaint is based upon a mere technicality of bookkeeping. The central idea and deal with moneys of the company not immediately required, in such a manner as from time to
involved in the discussion is the provision of the Corporation Law requiring loans to be time may be determined, and under (i)… to lend money or to aid in any other manner any person
stockholders only and on the security of real estate and shares in the corporation, or of shares association, or corporation of which any obligation or in which any interest is held by the
alone. It seems to be supposed that, when the respondent sells property acquired at its own corporation or in the affairs of prosperity of which the corporation has a lawful interest. The
foreclosure sales and takes a mortgage to secure the deferred payments, the obligation of the corporation was thus given broad and almost unlimited powers to carry out the purposes for
purchaser is a true loan, and hence prohibited. But in requiring the respondent to sell real estate which it was organized. The word ”deal” is broad enough to include any manner of disposition,
which it acquires in connection with the collection of its loans within five years after receiving and thus the donation comes within the scope of this broad power. The company was in fact very
title to the same, the law does not prescribe that the property must be sold for cash or that the much solvent as it was able to declare and issue dividends to its stockholders, and shows that the
purchaser shall be a shareholder in the corporation. Such sales can of course be made upon terms excess funds which were not needed by the company which was donated to the children was
and conditions approved by the parties; and when the association takes a mortgage to secure the justified under the AOI.
deferred payments, the obligation of the purchaser cannot be fairly described as arising out of a
loan. Nor does the fact that it is carried as a loan on the books of the respondent make it a loan on Under the second broad power, the corporation knew well its scope such that noone lifted a finger
the books of the respondent make it a loan in law. The contention of the Government under this to dispute its validity. The company gave the donation not only because it was indebted to him
head is untenable. but also because it was fit and proper to make provisions for the children and out of a sense of
gratitude.

Pirovano v Dela Rama. Under the leadership and management of Enrico Pirovano, president of Even assuming that the donation was ultra vires, still it cannot be invalidated or declared legally
Del Rama Steamship, the company grew and progressed until it became a multi-million ineffective for that reason alone, it appearing that the donation represents not only the act of the
corporation, the assets of which grew and increased from P240K to around P15M. He was Board but also that of the stockholders themselves since they expressly ratified the resolution. By
insured by the company for P1M. Esteban dela Rama, majority stockholder, distributed his shares this ratification, the infirmity of the corporate act, if any, has been obliterated thereby making the
among his 5 daughters, including the NDC, to which Dela Rama had an outstanding bonded act perfectly valid and enforceable, especially so if the donation is not merely executory but
indebtedness iao P7.5M, through a debt-equity swap arrangement which also gave the NDC consummated. The defense of ultra vires cannot be set up against completed or consummated
representation in the Board. Pirovano was killed by the Japanese during the war, and a Boardres transactions.
was adopted granting to the Pirovano children the proceeds of the insurance policies taken on the
life of the late president. However, the policy had lapse because the company was not able to pay An ultra vires act may either be an act performed merely outside the scope of the powers granted
the premiums regularly. The BoardRes authorizes the allocation of P400K convertible into 4000 to the corporation by its AOI or one which is contrary to law or violative of any principle which
shares of stock ifo of the Pirovano children, as well as a waiver of the preemptive rights of the would void any contract. A distinction has to be made with respect to corporate acts which are
former owners, the Dela Rama siblings. This was submitted to the stockholders which duly illegal and those merely ultra vires. The former are contrary to law, morals, public order or
approved the same. It appears, however, that Don Esteban did not realize that the dole out would policy, while the latter are not void ab initio, but merely go beyond the scope of the powers in the
actually be giving to the Pirovano children more than what they intended to give. This was AOI, and which renders the act merely voidable and thus ratifiable by the stockholders.
because the value then of the shares was 3.6 times the par value thereof, thus the donation iao

11
Harden v Benguet. Balatoc Mining, engaged in the mining of gold, sorely needed the infusion of
new capital to resuscitate its stalled operations. The officers approached the Benguet Mining Co,
an entity also engaged in gold mining. A contract was executed, which states that Benguet agrees
to construct a milling plant for the Balatoc mine and erect a power plant, in exchange for Balatoc
Mining shares valued at P600K and the excess in cash to compensate for the cost of the contract.
By the time of the complaint, the value of the stock of Balatoc had soared for a nominal valuation
to more than P11 per share. It was alleged by Harden of Balatoc that the Benguet Mining Co held
shares of stock in another mining corporation, the Balatoc Mining Company, in violation of a
prohibition against mining corporations from owning stock of another mining corporation in the
old Corpo law. The shareholders of Balatoc sued Benguet Mining to annul stock certificates of
Balatoc issued ifo Benguet and to recover money earned from the transaction. TC dismissed
complaint.

H: Although the contract between the two mining companies was illegal for contravening the old
Corpo Law, the Legislature, in adopting such a provision had the intention that public policy
should be controlling in the granting of mining rights. The violation in this case was of such a
nature that it can be proceeded upon only by way of a criminal prosecution, or by action 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 Balatoc Mining and Harden were the active inducers of that wrong. The contract has
in fact been performed on both sides, and there is no possibility of undoing what had been done.
Thus even where corporate contracts are illegal per se, when only 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 expectations.

Corporate powers: WYSIWYG

AOI related to relevant code provisions
Powers are built-in in the AOI, limited by primary
purpose
45: all encompassing powers
Necessary and incidental rule: necessary is different
from incidental
Common denominator contained in AOI
Code sets parameters/requirements (36-44)
Statute sets parameters (i.e. banks, Gen Banking Act)
Specific powers: dealing with SHs and 3rd parties
Cannot divorce exercise of corporate powers from
control and management
Extent of corporate powers would limit control and
management
Unlimited discretion cannot be exercised for
furtherance of secondary purposes in AOI

12