TITLE IV
Sec. 2. Corporation defined. - A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.
Theory of Concession -corporation mere creature and completely within the control of State
Art. 46. Juridical persons may acquire and possess property of all kinds, as well as incur obligations and bring civil or criminal actions, in conformity with the laws and regulations of their organization. (Civil Code)
Classification of Corporate Powers: (Pilipinas Looan Company v. Sec. (2001))
- Expressed - expressly granted to it by:
- law - Corporation Code
Sec. 36. Corporate powers and capacity. - Every corporation incorporated under this Code has the power and capacity:
- To sue and be sued in its corporate name (to sue through its BOD)
- Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation
- To adopt and use a corporate seal (no longer necessary)
- To amend its articles of incorporation in accordance with the provisions of this Code
- To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code
- In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation;
- To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
- To enter into merger or consolidation with other corporations as provided in this Code;
- To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity
- To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees
- To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation.
Extend or Shorten Corporate Term (Secs. 37 and 81 [1])
Sec. 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 board of directors or trustees and ratified at a meeting by the stockholders representing at least 2/3 of the outstanding capital stock or members in case of non-stock corporations. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That in case of extension of corporate term, any dissenting stockholder may exercise his appraisal right under the conditions provided in this code.
Sec. 81. Instances of appraisal right. – Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in the following instances:
1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence
Power to extend (State to granted only for a limited period of time) v. Power to shorten (inherent right of the corporation - only integral clause in the AIC, for practical purposes)
Appraisal Right: Art. 37 (only extension of term allowed to have appraisal right) > Art. 81 [1]
NOTE: Since it involves amendment in the AI so 2/3 of outstanding capital stock
Sec. 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. - No corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of directors and, at a stockholder's meeting duly called for the purpose, 2/3 of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital stock or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the stockholder's meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of any bonded indebtedness is to be considered, must be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the chairman and the secretary of the stockholders' meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof actually subscribed, the names, nationalities and residences of the persons subscribing, the amount of capital stock or number of no-par stock subscribed by each, and the amount paid by each on his subscription in cash or property, or the amount of capital stock or number of shares of no-par stock allotted to each stock-holder if such increase is for the purpose of making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock, or the incurring, creating or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall require prior approval of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the Securities and Exchange Commission and attached to the original articles of incorporation. From and after approval by the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital stock shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least 25% 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 of which is equal to 25% of the subscription: Provided, further, That no decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the approval by a majority vote of the board of trustees and of at least 2/3 of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which shall have the authority to determine the sufficiency of the terms thereof.
Power to Increase or Decrease Capital Stock (Secs. 38) (NOT inherent in the corp. bec. concerns item req. in AIC (Ammend AIC Sec. 16) and governed by common law doctrines: trust fund doctrine and pre-emptive rights)
-Requisites:
- Majority Vote of BOD; and
- 2/3 Outstanding Capital Stock (at a stockholders' meeting duly called for the purpose
Appraisal Right Issues - No right of appraisal
- Increase
- Has the potential effect of diluting proportionate interest of SH
- 2 grounds for no appraisal: (1.not prevented from selling 2.purpose to increase is to raise funds)
- Decrease
- Appraisal right = return of investment
- its articles of incorporation
2. Implied - may be incidental to such conferred powers and reasonably necessary to accomplish its purposes
4. Incidental - may be incidental to its existence
Concept
- Corporate Principle: Corporation is a creature of limited powers and CANNOT give consent beyond its powers
- Commercial Public Policy: those who deal in Good Faith (G.F.) with a corporate entity must be protected in their contractual expectations
Where Corporate Power Lodged
- Board of Directors (BOD)
- Duly authorized officers and agents (executive committee; officers or contracted managers - must be delegated/authorized for specific purpose)
Sec. 45. Ultra vires acts of corporations. - No corporation under this Code shall possess or exercise any corporate powers except those conferred by this Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred.
3 Types of Ultra Vires Acts:
- Outside of the express, implied and incidental powers of a corporation (law and laws of its organization) - classic type
Test to Determine If Act or Contract is Ultra Vires: Whether the act is direct and immediate furtherance of the corporate business, fairly incident to the express powers and reasonably necessary to their exercise
Supervening Policies in Ultra Vires (NOT per se illegal or prohibited) is liberal because of:
- 2 public policies:
- Contract Law
- Corporate Law
- Business Judgment Rule
- Act of issuing the checks - within the ambit of a valid corporate act, for it was for securing a loan to finance the activities of the corporation ≠ ultra vires act - implied
- ultra vires act - committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law
- Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when
1.
a. to a patently unlawful act of the corporation
b. for bad faith or gross negligence in directing its affairs
c. for conflict of interest, resulting in damages to the corporation, its stockholders or other persons
2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action
2. Executed on behalf of the corporation WITHOUT proper authority from the Board of Directors
- BOD NOT President exercises corporate powers (Safic Alcan & Cie v. Imperial Vegetable Oil (2001))
- Contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation UNLESS: ratified by the corporation (Woodchild Holdings, Inc v. Roxas Electric Constructions Co. (2004))
3. per se contrary to laws, morals, or public policy (malum in se or malum prohibitum)
General Judicial Attitude Towards the Ultra Vires Doctrine
The plea of "ultra vires" will not be allowed to prevail, whether interposed for or against a corporations when it will not advance justice but, on the contrary, will accomplish a legal wrong to the prejudice of another who acted in good faith (G.F.) (Zomer Dev. Corp. v. International Exchange Bank (2009))
Doctrine of Estoppel or Ratification of Ultra Vires Acts
- GENERAL RULE: Acts done in excess of corporate officers' scope of authority CANNOT bind the coporation
- EXCEPTION: Ratification (National Power Corp v. Alonzo-Legasto (2004))
NOTE: Ultra Vires in 1 and 2 (merely voidable which may be enforced by performance, ratification or estoppel) v. in 3 Illegal Act (void)
- By ratification the infirmity of the corporate act has been obliterated thereby making it perfectly valid and enforceable. This is specially so if the donation is not merely executory but executed and consummated and no creditors are prejudice, or if there are creditors affected, the latter has expressly given their conformity