TITLEIV

POWERS OF
CORPORATIONS
A corporation
eXercises its
through its board of directors powers
its day authorized
oficers andagents,
and/or exceptin instances where the
Code requires stockholders'
Corporation approvat for certain
specific acts,1

Corporate powers nd catd

ogrant
A corporation has no
..the Corporation Code andpowefexceptthose(expressly conferred on it
those that are ímplied orincidental
to its
In turn, a
corporation exercisessaid
existence. said powers through its board of
and/or its duly authorized
directors officers and agents, Thus, it has been
hserved that the power of a corporation to sue and be sued
in any court is
with thé board of directors>that
lodged exercises its corporate powers. In
turn, physicalacts of the corporation, like the signing of
documents, can be
nerformed only by natural persons, duly. authorized for the purpose by
corporate by-laws orby a specific actof the board of directors.2

SEC. 35. Powers and Capacity. - Every corporation

Corporate
incorporated under this Code has the power and capacity:
(a) To sue and be sued in its corporate name;
(b) To have perpetual existence unless the certificate of
incorporation provides otherwise;
(c) To adopt and use a corporate seal;
(d) To amend its articles of incorporation inaccordance with the
provisions of this Code;
(e) To adopt bylaws, not contrary to law,morals. or public policy,
and to amend or repeal the samein accordance with this Code;
() In case of stock corporations, to issue or sellstocks to

subscribers and to sell treasury stocks in accordance with the

provisions of this Code; and to. admit membersy to the

corporation if it be a nonstock corporation;
(8) To purchase, receive, take or grant, hold, convey, sell, lease,
with such real and
pledge, mortgage, and otherwise deal
and bonds of other
personal property, including securities
of the lawful business of the
corporations, as the transaction
require, subject to
corporation may reasonably and necessarily
the limitations prescribed by law
and the Constitution;
(h) To enter into a partnership, joint. venture, merger,
agreementwith natural
Consolidation, or any other commercial
and juridical persons;

etal., G.R. No. 153413, March 1, 2007.

Nectarina Raniel and Ma. Victoria R. Pag-ong vs. Paul Jochico,
G.R. No..152542, July
Monfort lI,
S.
Antonio B.
8,
Corporation vs.
Monfort Development
Hermanos Agricultural
2004.

315
 TITLEIV -POWERS OF CORPORATIONS

() To make reasonable donations, Including those for the

welfare or for hospital, tharttable, cultural, scientine, puhlle

) similar purposes: Providrd, That no foreign corporation

give donations in atd of any political pafty or candidate shall
puposcs of partisan political activity;
To estahlish pension, retirement, and other plans forthe
of its irectors, trustees, officers, and employees; and
(k) To esercise such other powers as may be essential or
to carry out its purpose or purposes
orfor

beneft

as stated in the necessary

articles of
incorporation.

The above enumerations refer to the generalpowers ofa : corporation

and/or
are exercised by the board of duly
its
which directòrs
authorized
officers and agents.

Power of a corporation to sue

A derivative suit is an action brought by á stockholder on behalf of
the corporation to enforce corporate rights against the corporation's
directors, officers or other insiders. Under Sections 23 and 36
of th

Corporation Code (Now Section 22 and 35, Revised Corporation

Code). the

directorsorofficers, as provided under the by-laws, have the right to deide

whether ornot corporation should sue.Since these directorsor officers will
a

never be willing to sue themselves, or impugn their wrongful or fraudulent

in the name
decisions, stockholders are permitted by law to bring an action
of the corporation to hold these directors and officers accountable.In
derivative suits, the real party in interest is the corporation, while the
stockholder is a mere nominal party.

Note:
Every corporation in corporated under the Revised Corporation Code
the certificate of
has the power and capacityto have pernetual existence unless
incorporationprovides otherwise.

Note:
Code
Every corporation incorporated under the Revised Corporation
merger,
has the power and capacity to enter into a partnership joint venture,

consolidation, or any other commercial agreement with naturalandjuridical

personsS.

Note:
No foreian corporationshall give donations in aid of any political
Thereis
party or candidate or for purposes of partisan political activity.

similarprohibitionas regards domesticcorporation.

3Juanito Ang vs. Spouses Robertoand Rachel Ang,G.R. No.201675,June 19,2013.

316
 TITLE IV/
- - POWERS OF
CORPORATIONS

36.Power to Extend or Shorten Corporate, Term,

SEC. A pffvate
may extend or shorten its term as stated in the
corporation articles of

incorporation when approved by a majorlty vote of the board of

directors or trustees, aht ratified at a meeting by the stockholders or
members representing at least two-thirds (2/3) of the outstanding
stock or of its members. Written notiçe
capital of the proposed Iaction
and the time and place of the meeting shallbe sent to stockholders or
members at theirrespective place of residence as shown in the booksof
the corporation, and must be deposited to the addressee in the post
office with postage prepaid,served personally, or when allowed in the
bylaws or donewith the consent of the stockholder,sent electronically
in accordance with the rules and regulations of the Commission on the
use ofelectronicdata messages. In case of extension of corporate term,
a dissenting stockholder may exercise the right of appraisal under the

conditions provided in this Code.

Power toExtend or Shorten Corporate Term

Requirements:
LApproval by a majority vote of the board of directors or trustees: and
2Ratification by the stockholders representing at least 2/3 of the
Qutstanding capital stock or by atleast 2/3ofthe members in case of non
stock corporations.

What is APPRAISAL RIGHT? disage

Appraisal right means that a stockholder who dissented and voted

againstthe proposed corporate action, may choose to get out of thecorporation by

shares.
demanding payment of the fairmarket value of his

Note:
corporateterm, any dissenting stockholdermay
Incase ofextension of

exercise his appraisalright.

Note:
to extend oE shorten the
Written notice of the proposed
action

articles of incorporationand
the time and
corporations'term as stated in the
or members at their
place the meeting shallbe sent to stockholders
of

and must
fespective place residence as shown in theboaks of thecarporation,
of

with postage prepaid, served

be deposited to the addressee in the post office
bylaws or done with the çonsent of the
personally,or when allowed in the
with the rules and regulations of
stockholder,sent electronically in accordance
the Commission on the use of electronic data messages.

SEC. 37. Power to Increasè or Decrease Capital Stock; Incur, Create or

shall increase or
Increase Bonded Indebtedness. - No
corporation
create or increase any bonded
decrease its capitat stock or incur,
majority vote of the board of
indebtedness unless approved by a
317
 TITLE IV -POWERS OF CORPORATIONS

of the outstanding eapital

directors and by two-thirds (2/3)
for the purpose. Written notie stockat
stockholders' meeting duly called a
the stockholders' meeting and the of
the
time and place of purpose for
at their places of
meeting must be sent to the stockholders sald
of the corporation and served on the fresidenceas
shown in the books
means recognized inthe stockholders
personally,orthrough electronic
rules as a valid mode for corporatlon's
bylaws and/or the Commission's serviceof
notices.
A çertificate must bêsigned by a majority of the dírectors of
the
corporation and countersigned by the chairperson,
and
secretary of the
stockholders' meeting, setting forth:
(a) That the requirements of this section have been
complied
with;
(b) The amount of the increase or decrease of the capital stock.
(c) In case ofan increase of the capital stock, the amountcof
capital

stock or number of shares of no-par stock thereof actuall

subscribed, the names, nationalities and addresses of tha
persons subscribing, the amount capitalstock ornumber of
of
no-parstocksubscribed by each, and the amountpaid by each

on the subscription in cash orproperty, or the amountof

capital stock or number of shares of no-par stock allotted' to
each stockholder if such increase is forthe purpose of making
effective stock dividend thereforauthorized;
(d) Any bonded. indebtedness to be incurred, created or
increased;
(e) The amount of stock represented at the meeting; and
() The vote authorizing the increase or decrease 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 Commission, and where appropriate, of the Philippine
Competition Commission. The application with the Commission shall be
made within six(6) months from the date of of
approval of the board
directors and stockholders, which period may be extended
for

justifiable reasons.
Copies of the certificate shall be kept of the
on file in the office
corporation and filed with the Commission
and attached Itothe originalthe
articles of
incorporation. After approval by the Commission and
ssuance by the Commission of its stock
certificate of filing, the capital or
shall be
deemed increased or decreased and the incurring
Ccreating of
increasing of: any bonded indebtedness
authorized, as the certificatefor
tiling may declare:
Provided, That the Commission shall not accept.
filing any by
certificate of increase of
capitalIstock unless accompanied
318
 TITLE.
IV- POWERS OF
CORPORATIONS

asworn statement of the treasurer of

atthe time of thefiling of the corporation
office lawfully holding
the certificate,
twenty-five percent (25%) of the increase in showing that at least
subscribed
and that atleast capital stock has been

subscribed been paid intwenty-five

has percent (25%)of the amount
pe
actual cash to
the valuation of which is the corporation or that
property, equal to
of the
subscription,has been twenty-five percent (25%)
transferred tothe
further, That no decrease
in capital stock corporation: Provided,
shall be approved by the
Commission ifits effectshall
prejudice the rights of
Nonstock corporations corporate e creditors.
may incur, create or
indebtedness when approved increase bonded
by a majority of the board of
of at least
two-thirds (2/3)of the members trustees and
in a meeting duly called for
the purpose.
Bonds issued by a corporation
shall be registered
with the
Commission, which shallhave the authority
to determine the sufficiency
of the terms thereof.

THREE INSTANCES OF DISTRIBUTION OF

CORPORATE CAPITAL
The Trust Fund Doctrine
provides that subscriptions to the
capital
stockof a corporation constitute a
fund to which the creditors have a rightto
look for the satisfaction of their claims. This
doctrine is the underlying
principle the procedure forthe distributionof capital assets,
in
embodied in
the Corporation Code, which allowsthe
distributionof corporate capital only
in three instances: (1) amendment of
the Articles of Incoporation to reduce
the authorized canital stock, (2) purchase of redeemable shares by
the
Corporation, regardless of the existence of unrestricted retained
earnings, and (3) dissolution and eventual liauidation ofthe cornoration.+

Under Section 38 of the Corporation Code (Now Section 37, Revised

Corporation Code), a corporation engaged in increasing its authorized capital

stock, with the required vote of its Board of Directors and of its stockholders,
must file a sworn statement of the treasurer of the corporation showing that
atleast twenty-five percent (25%) of "such increased capital stock" has been
subscribed and that at least twenty-five percent (25%) of the amount
Subscribed has been paid either in actual cash or in property transferred to
tne corporation. In other words, the corporation must issue at least twenty
five
percent (25%) of the newly or contemporaneously authorized capital
stock in the
course of complying with the requirements of the Corporation
Code for stock.
increasing itsauthorized capital

In contrast,after approval by the SECof the increase of its authorized

Capitalstock, and from time to time thereafter,the corporation, bya vote of

its Board of Directors, and without need of either stockholder or SEC

4 Ong
Yong,et.al. vs. David Tiu, G.R. No. 144476, April 8, 2003.
et.al.,
S.
319
TITLE IV -POWERS OF CORPORATIONS

sell shares of its already

approval, may issue and authorized but
shareholders or to members of stil
capital stock to existing the
general
unissuet

When capital stock is issued in the course of and in pusik.

its authorized capital stock

the requirements of increasing under
compllance
37,Revised wm
ofthe Corporation Code (Now Section Corporation
course examinesthe financial condition of the Code),Secton'
as a matter of
theSe
hence there is no real need for exercise of SEC authority
corporation, an
under
Securities Act. Thus, one of the multiple documentation the
Reviseh
requirements
the current regulations of the SEC in respect of filing a certificate
of "a of under
of authorized capital stock, is submission financial increas
statement duly
certified by an independent Certified Public Accountant (CPA)as
of
thelates
date possible or as of the date of the meeting when stockholders

increase/decrease in capital stock or thereabouts. When all approved the

or
of the part
authorized capital stockis proposed to be issued as stock
newly
theSEC requirements are even more exacting: they require, in addition
dividends,

audited financial statements,the submission

regular
by the
"detailed corporation ofa
or Long Form Report of the certifying Auditor." Moreover si
approval of an increase in authorized capital stock by
the stockholders
holding two-thirds (2/3) of the outstanding
capital stock is required bu
Section 38 of the Corporation Code (Now
Section 37, Revised Corporation
Code), at a stockholders meeting held for that
purpose, the directors and
officers of the corporation may be
expected to take pains to inform the
shareholders of the financial condition and
prospects of the corporation and
of the proposed utilization of the
fresh capital sought to be raised.

Upon the other hand, as already noted, issuance

of previousy
authorized but theretoforeunissued
capital stock by the corporation
requirs
only Board of Directors approval.
Neither notice to nor approval by ue
shareholders or the SEC is required
for such issuance.5

Increase or Decrease of Authorized Capital Stock

Requirements:
1. Written
notice the proposed
of the capital
of
stock and increase or diminution the
of thetime and which
place of the stockholder's meetingat
proposed increase or
ofthe capital stock is to be considered
diminution
must be as
addressed to each
shown on the books of the stockholder at his place of residence
addressee
by mail, or Corporation and deposited tothe
served personally, or recognized
in the through electronic means a vald
corporation's bylaws and/or as
mode for serviceof the Commission's rules
notices;
2. No decrease of shall
the capital stock shall efect
prejudice the rights of be approved if its
corporate creditors;

5Nestle Philippines, Inc. vs. CA and SEC,G.R.

No. 86738,November 13, 1991.

320
TITLE IV -POWERS OF CORPÓRATIONS

3.Approval by a majority vote of the board of

directors;
A.Ratification by the stockholders holding at least 2/3 of the
stock; outstanding
capital
5.Acertificate must be signed by a majority of the
directors of the
corporation and countersigned by the
chairperson and secretary of the
stockholders' meeting;
6.Approval thereofby the SEC; and
7. Treasurer'saffidavitshowing
that at least25% of such increased
stock has been subscribed capital
and that at least 25% of the amount
subscribed has been paid.

Incurring, Creating or Increasing Bonded Indebtedness.

Bonded Indebtedness
It is a long-term
indebtedness secured usually by real property.

Note:
The requirements for the power to incur, create, or
increase bonded
indebtednessis also the samewith the power to
increaseor decrease of capital
stock.

Nonstock corporations may incur, create, or increase bonded

indebtedness when approved by a majorityof the board of
trustees and ofat
least two-thirds (2/3)
of the members in a meeting duly called for the
purpose.

Registration of the bonds

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.

SEC. 38. Power to Deny Preemptive Right. - All stockholders of a stock

corporation shall enjoy preemptive right to subscribe to all issues or
disposition of shares of any class, in proportion to their respective
shareholdings, unless such right is denied by the articles of
Incorporation or an amendment thereto: Provided, That such
preemptive right shall not extend to shares issued in compliance with
laws requiring stock offerings or minimum stock ownership by the
public; or to shares issued ingood faith with the approval of the
Stockholders representing two-thirds (2/3) of the outstanding capital
Stock,in exchange for property needed for corporate purposes or in
Payment of a previously contracted debt.

Pre-emptive Right
It is the preferential right of all stockholdersofa stock corporation to
suDScribe to all issues or disposition of shares of any class, in proportion to their
respective
shareholdings.
321
 OF CORPORATIONS
TITLE IV -POWERS

Purpose: right is to enable the

purpose of pre-emptive
The
in the corporation.
retain his proportionate control shareholder ty
Note:
Pre-emptive right must be exercised within the period
articles of incorporationor the by-laws. statedin
the

cavailable
Pre-emptive right is not
(POWERTO DENY
RIGHT) PRE-EMPTIV
1. Shares to be issued in compliance with laws requiring stock
minimum stock owmership by the public;and offerings

2. Shares to be issued in good faith with the approval the of

representing 2/3 of the outstanding capital stock, in stockholdes

needed for corporate purposes exchangefor
property or in payment of a
contracted debt. previously

Problem:
N, Inc. filed an application for the approval of the increased
authorized capital. On January 8, 1975, a decision was rendere
approving the said application.
Pursuant to the approval given by the National
Telecommunications Commission (NTC), N, Inc. filed its Amended
Articles of Incorporation with the SEC. When the
amended articles were
filed with the SEC, the original authorized
capital of P100,000 was
already paid. Of the increased capital of P2,900,000 the subscribers
subscribed to P580,000 of which P145,000 was fully
paid.
Thereafter, N, Inc. entered into a contract with C, Inc. for the
"'manufacture, supply, deliveryand installation"of telephone equipment
In accordance with this contract, N, Inc. issued 36,000
shares of common
stocks toC, Inc.

On May
19, 1979, the stockholders of N, Inc. held their annual
stockholders' meeting to elect their seven directors to their
Boaru
Directors, for the year 1979-1980. In as
this election, X was unseated
Chairman of the Board and
President of the Corporation, but was elected
as one of the directors,
together with his wife, W.
Inthe election, C, the
Inc. was able to gain control of N, Inc. wwhen
latter's legal
counsel, Atty. M won a seat in the Board with the helpofC
Inc. In the
reorganization, Atty. M
became president. M
The following were elected Aty,
F, R, J, S, X, and in the May 19,1979 election: the
W. The last three named directors never attended
meetings.
During the tenure another
of the Atty. M Board,it entered
into
contract with C, Inc.
for the supply and installation of additional
of
equipment but also issued
to C, Inc. 113,800 shares of common stock.
322
TITLEE IV- POWERSS OF
CORPORATIONS

Are the stockholders of

N, Inc. have a right of
113,800shares? preemption to the
Answer:
While the group of Atty. M
wAs in control of N fnc, the
Board issucd 113,800 sharesof
stock toC, Inc. X sald
Atty. M
Board. in issuing said that the Atty.M
shares without notifying N,
violated their right of Inc. stockholders,
pre-emption to the unissued shares.

The Supreme Court in Benito vs. SEC, et al.,has ruled that:

Petitionerbewails the fact that in

view of the lack of noticeto
such subsequent issuance,
of him
he was not able to exercise his
emption over the unissued right of pre
shares.However, the general
emptive riaht is recoanized rule is that pre
only with resnect to new
issues of shares. and
not with respectto
additional issues of oriainally
is on the
authorized shares,This
theory that when a
corporation at its inception offers its
shares,it is presumed to have first
offered all of those which it is
issue. An original authorized to
subscriber is deemed to have taken
his shares knowing
that they form a definite proportionate part of
the whole number of
authorized shares. When theshares left
unsubscribed are later re-offered,
he cannot therefore claim a
dilution of interest.

The questioned issuance of the 113,800 stocks is

not invalideven
assuming that it was made without notice to the
stockholders as claimed
by X. The power toissue shares of stocks in a
corporation is lodged in the
board of directors and no stockholders
meeting is required to consider it
because additional issuance of shares of stocks does not
need approval of
the stockholders. Consequently, pno pre-emptive right of N, Inc's
stockholders was violated by the issuance of the 113,800
sharesto C, Inc.6

Note:
A suit to enforce preemptive rights in
a corporation is not a

derivative suit. Thus, a temporary restraining order enjoining a person

from representing the corporation will not bar such action, because it is
instituted on behalf and for the benefit of the shareholder, not the
corporation.?

SEC. 39. Saleor Other Disposition of A ssets.- Subject to the provisions

0f Republic Act No. 10667, otherwise known as the "Philippine
Lompetition Act", and other related laws, a corporation may, by a
najority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge, or otherwise dispose ofits property and assets, upon
Such terms and conditions and for such consideration, which may be

6 see
7GildaPedroLopez Dee vs. Securities and Exchange Commission, et.al., G.R. No. L-60502
C. Lim, et.al. vs. Patricia Lim- -Yu, G.R. No. 138343, Febrauary 19, 2001.

323
 TITLE IV-POWERS OF CORPORATIONS

instruments for the

money, stocks,bonds, or other paymentof
as its board of
or other property or consideration, directors
or money
may deem expedient. the corporation's
or substantially all of trustees
A sale ofall

its goodwill, must be authorized by the

assets, including propertlesan
stockholders representing
at least two-thirds (2/3) of the Vote of
the
stock, or at least two-thirds (2/3) the
of
capital outstanding
duly called for the memhers,
stockholders' or members' meeting
purpose.
In nonstock corporations where there are no
members
voting rights, the vote of atleast a majority of thettrusteesin with

be suficient authorization for the corporation to enter officewi,

transaction authorized by this section. into
any
The determination of whether or not the sale
involves
substantially all of the corporation's properties and all or
assets must
computed based on its net asset value, as shown in itslatest be

statements. A sale or other disposition shall be deemed financial

to
substantially all the corporate property and cover
assets if
thereby the corporation would be rendered incapable of continuin
business oraccomplishing the purpose for which it was incorporated
Written notice of the proposed action and of the time and place for
the meeting shall be addressed to stockholders or
members at their
places of residence as shown in the books of the
corporation and
deposited to the addressee in the post office
with postage prepaid.
served personally, or when allowed by the bylaws or done
with the
consent of the stockholder, sent electronically:
Provided, That any
dissenting stockholder may exercise the right of appraisal under the
conditions provided in this Code.
After such authorization or approval by the stockholders or
members, the board of directors or trustees may,
nevertheless, in its

discretion, abandon such sale, lease,

exchange, mortgage, pledge,or
other disposition of property and assets,subject to
the rights of third
parties under any contract relating thereto,
without further action or
approval by the stockholders or members.
Nothing inthis section is intended to
restrict the power or d
corporation, without the authorization by
the stockholders
members, to sell, lease, exchange, otherwise
dispose
mortgage, pledge, or
any of its property and
the same is necessaryin
of the
assets if
usual and regular course of business of or if
the
the corporation
proceeds of the sale or other
disposition of such and assets
shall be appropriated for property
the conduct of its remaining business

While the Corporation

Code
allows the transfer of all or. substantially
the properties and assets of a
all

the creditors of the corporation, thetransfer:should notnreiudie

without
assianor. The only way the
prejudice to the creditors is to transfer can proceed sof
hold the assignee liable for obligations the
324
TITLE
IV. - POWERS OF
CORPORATIONS atet:

The acquisition by
the assignor. the assignee of all or the
ofthe assignor necessarily substantiallyall of

assets includes the assumption of the

unless the creditors who did not assignor's
ljabilities, consent to the transfer chooseto
the transfer on the ground of fraud.
rescind To allow an assignor to transfer
business, properties and assets without
all its the consent its creditors and of

without
requiring the assignee to assume the assignor's
Creditors.The assignment obligations will
defraud the will place the
assignor'saassets beyond
the reach of its creditors,8

Requirements:
1 Writtennotice of the proposed action and of the
time and place of the
meeting shallbe addressed to each
stockholder or member at his place
of residence as shown on the
books of thecorporation and deposited to
the addressee in the post office
with postage prepaid, or served
personally, or when allowed by the bylaws or done
with the consent of
the stockholder, sent electronically;
2. Approval by the majority vote of its board of directors or trustees;
3. Ratification by the vote of the stockholders representing at least 2/3 of
the outstanding capital stock,or in case of
non-stock corporation, by the
vote of at least to 2/3 of the members; and
4. Anydissenting stockholder may exercise his appraisal right.

Note:
SEC approval is not required.

Note:
The determination of whether or not the sale involves all or
substantially allof the corporation'sproperties and assets must be computed
based on its net assetvalue, asshown in its latest financial statements.

Substantially the corporate assets

all of

A sale or other disposition shall be deemed to cover substantiallyall

the corporate property and assets thereby the corporation would be

if

Tenderedincanable ofcontinuing the business or accomplishing the purpose

for which it was incorporated.

Ratificationnot required
1.If the and regular course business
same is necessary in the usuall of of

said corporation;or
2.If the proceeds of the sale or other disposition such property and
of

aSsets be appropriated for the conduct of its remaining business.

8Caltex August 10, 2006.

Inc..vs.PNOC Corporation, G.R. No. 150711,
Shipping and Transport
325
 TITLE IV -POWERS OF CORPORATIONS

Own Shares. - Provided that the

SEC. 40. Power to Acquire
earnings in its booksto cover the corporaton
has unrestricted retained
stock corporation shall have the shares
purchased or acquired,
a
tobe
its own shares
for legitimate
a
powerta
purchase or acquire corporate
following cases:
or purposes, including the purpose

To eliminate fractional shares arising out of stock

(a)
an indebtedness tothe dividends,
(b) To collect or compromise
subscription, in a delinquency
arisingout of unpaid
corporation,
sale,:
delinquent shares sold during said saale; and
to purchase and
(c) To pay dissenting or withdrawing stockholders entitled
under the provisions of to
payment for their shares thisCode.

a Corporation may Acquire its Own Sharee

Instances when
To eliminate shares arising out of stock dividends:
1.

2. To collect
fractional

or compromise anindebtedness to the

a delinquency
corporation,
sale, and
,
to
arisingout
of unpaid subscription, in purchase

delinquent shares sold during said sale;

to pavmens &.
3. To pay dissenting or withdrawing stockholders
entitled

their shares under the provisions of this Code;

4. To acquire treasury shares;
5.Redeemable shares regardless of existence of retained earnings:
6. To effect a decrease of capital stock; and
7. In close corporations, when there is a deadlock in themanagement the of

business, the SEC may order thepurchase at their fair value of the shares
of any stockholder by a corporation regardless of the availability
of

unrestricted earnings in its books, or by the other stockholders.

What arefractional shares?

Fractional shares are shares which are less than one share.

General rule:
The corporation may only acquire its own stocks in the presence or

unrestricted retained earnings.

Exceptions: as
for
1.Redeemable shares may be acquired even without surplus profit
long as it will not result to the insolvency of the Corporation; and
2.In a close corporation.

Basis of unrestricted retained earnings

and regulatory
The has exclusive supervision, control
SEC iretained
jurisdiction to investigate whether the corporation has unrestricted isfor
the purchase
earnings to cover the payment for the shares and whether
a legitimatecorporate purpose.

326
TITLEIIV- POWERS OF
CORPORATIONS

These provisions of the Corporation

Code should be deemed wrítten
the agreement between the
into corporation and the stockholders even if
here is no
express eference to them in the
promissory note.The principleís
that an existing law
well settled entersinto andforms part of a valid contract
without need
forthe parties'
expressly making reference to it.

The requirement of unrestricted

retained earníngs to cover the
based on the trust fund
is
shares doctrine which means that the capítal
stock,
and other
property assets of a corporation are
regarded as equíty in
tmust for the payment
of corporate creditors.The reason is
that creditors of a
corporation are preferred over the stockholders in
the distribution of
corporate assets. There can be no
distribution of assets among the
stockholders without first paying corporate
creditors.Hence, any disposition
of corporate funds tothe prejudice of
creditors is null and void. "Creditors of
acorporation have the right
to assume that so long as there are outstanding
debts and liabilities, the board of directors
will not use the assets of the
corporation to purchase its own stock.9
Three instances of distribution of corporate capital
The Trust Fund Doctrine provides that subscriptions to the capital
stock of a corporation constitute a fund to which the creditors
have a right to
look for the satisfaction of their claims.This doctrine is the
underlying
principle the procedure for the distributionof capitalassets,embodied in
in

the Corporation Code,which allows the distributionof corporate capital only

in three instan ces: (1)amendment of the Articles of Incorporation to
reduce
the authorized capital stock, (2) purchase of redeemable shares by the
corporation, regardless of the existence of unrestricted retained
earnings, and (3)dissolution and eventual liquidationof the corporation.10

Problem:
X and Y are stockholders of Z Corp. Later, Z Corp. decided to
amend its articles of incorporation to remove the stockholders' pre
emptive rights to newly issued shares of stock.X andY voted against the
amendment and demanded payment of their shares at the rate
of P2.27/share based on the book value of the shares.
Z Corp. found the fair value of the shares demanded by X and Y
unacceptable. It insisted that the market value should be the value, or
PO41/share and that the payment could be made only if Z Corp. had
unrestricted retained earnings in its books to cover the value of the
shares,which was not the case.
the parties
The disagreement on the valuation of the shares led
to constitute an appraisal committee, each of
them nominating a

vs. CA and Nilcar Y. Fajilan, G.R. No. 77860, November 22, 1988.
Environmnental Development Corporation
10
144476,April 8, 2003.
10
Ong Yung,et.al. vs. David S. Tiu, et.al., G.R. No.

327
 OF CORPORATIONS
TITLE IV -POWERS

then nominated the third

who together The appraisal
member
representative, committee.
of theappraisal
would be chairman for X and
Y.

of P2.54/share commite
reported its
valuation .Subsequently,
ofthe x
based on the valuation appraisal and
demanded payment asthey could be paid.
Xand Y's demand committee,
Z Corp.refused ony
retained learnings tocover
unrestricted thefalrwhen
the corporation
had |
no retained earnings at thetime of X vai
shares, butthat it had
of the Statements.
out by its inancial and'%
demand as borne X and Y sued Z Corp.
Corp.'s refusal
to pay, .for
Upon Z collectinn

and damages.
IsZ Corp. correct?
Answer: certain
A stockholder who dissents from corporate
actions has
of the fair value
of his or her
the right to demand payment shares.This
of appraisal,is expressly
recognized in
known as the right
right,
(Now Section 80, Revised CorporationCode). |
Section

81 of the Corporation Code

may be exercised when thereisa
Clearly, the right of appraisal
or articles
change in the charter
of

incornoration
fundamental
stockholders. It does not w
of the
substantiallypreiudicing the rights
It serves the purpose nf
unless objectionable corporate action is taken.
enabling the dissenting stockholder tohave
his interests purchased and

to retire from the corporation.

Under the common law, there were originally conflicting views
or purchase its own
on whether a corporation had the power to acquire
stocks.In England, it was held invalid for a corporation
to purchase its

method
issued stocks because such purchase was an indirect
ofreducing

restricted), aside from being inconsistent

capital (which was statutorily
creditors.Only a few American
with the privilege of limited liability to
the strict English rule
jurisdictions adopted by decision or statute
forbidding a corporation from purchasing its
own shares. In some
American states where the English rule used to be adopted, statutes
funds were enacted, whle
granting authority to purchase out of surplus
others, shares might be purchased even out of capital
provided tne
in
rights of creditors were not prejudiced. The reason underlying
limitation share purchases sprang from the necessity of imposing
of

sand against
safeguards against the depletion by a corporation ofits assets:
theimpairment of its capital needed for the protection of creditors.
shares
Now, however, a corporation can purchase its Own for
is

provided payment made out ofsurplus profits and the acquisitionrule

is is

new
a legitimate corporate purpose. In the Philippines,this
embodied in Section 41 ofthe Corporation Code (Now.Section40
Revised

Corporation Code). unless

payment shall be made to any dissenting stockholder cover
No
to
the corporation has unrestricted retained earnings in its books
the payment. In case the corporation has no available unrestricted
328
TITLE IV -POWERS OF CORPORATIONS

retained earnings in its

books, Section 83 of the
Section 82, Revised Corporation Code (Now
Corporation Code) provides that if
the dissenting
stockholder is not paid the value of
his shares within 30
award, his voting and dividend days after the
rights shall immediately be
The trust fund doctrine restored.
backstops the requirement of
unrestricted retained earnings to
fund the payment of the shares
stocks of the withdrawing of
stockholders. Under the doctrine, the
stock, property, and other capital
assets of a corporation are
in trust for the regarded as equity
payment of corporate creditors,who are
preferred in the
distribution of corporate assets.
The creditors of a corporation have the
right to assume that the board
of irectors willnot use
the assets of the
corporation to purchase its own stock
for as long as the corporation has
outstanding debtS and liabilities.
There can be no distribution of assets
among the stockholders without first
paying corporate debts. Thus, any
disposition of corporate funds and
assets to the prejudice of creditors
is
null and void_11

SEC. 41. Power to Invest Corporate Funds in Another

Corporation or
Business or for Any Other Purpose. - Subject to the
provisions of this
Code, a private corporation may
invest its funds in any other
corporation, business, or for any purp0se other than the primary
purpose for which it was organized, when approved by a majority of
the
board of directors or trustees and ratified by the
stockholders
representing at least two-thirds (2/3) of the outstanding capital stock,
or by at least two-thirds (2/3)of the members in the case of nonstock
corporations, at a meeting duly called for the purpose. Notice of the
proposed investment and the time and place of the meeting shall be
addressed toeach stockholder or member atthe place of residence as
shown in the books of the corporation and deposited to the addressee
in the post office with postage prepaid, served personally, or sent

electronically in accordance with the rules and regulations of the

Commission on the use of electronic data message, when allowed by the
bylaws or done with the consent of the stockholders:Provided, That any
dissenting stockholder shall have appraisal right as provided in this
Code: Provided, however, That where the investment by the corporation
is reasonably necessary to accomplish its primary purpose as stated in

the articles of incorporation,the approval of the stockholders or

members shallnot be necessary.

Requisites:
I. To accomplish its primary purpose
1.Approval of the majority of the board of directorsor trustees; and
2.The approval of the stockholders or members shall not be necessary.

G.R. No. 157479, November 24, 2010.

1 see Philip Turner and Elnora Turner vs. Lorenzo Shipping Corporation,

329
 TITLE IV -POWERS OF CORPORATIONS

other than the primary

I. To accomplish a purposeof the board ofd directors orpurpose
of the nmajority
Approval
1. trustees;,
representing at least
Ratification
by the stocklholders
2.
2/3 of the
stock,or by at least
outstandingcapital in
at a stockholder's ormembersinthe
r

of non-stock
corporations, member's a
duly called for the purpose;
proposed investment andthe time
meeming,

3. Written notice of the and

the meeting shall be addressed
toeachstockholder or place
member
or sent electronically in by
or served personally, accordance mat
on the use of
regulations of the Commission
with
the
rules and
message, when allowed by the
bylaws or done with theelectronic dat,
consentofthe
stockholders;
4. Any stockholder shall have appraisal right; and
dissenting

5. Theratification nmust be made at a stockholder's or member's

meeting
duly called forthe purpose.

Funds
The term "funds" includes any corporate property to be used in

furtheranceof business.

SEC. 42.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, 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
totheunpaid balance on the subscription plus costs and expenses, while
stock dividends shall be withheld from the delinquent stockholders
until their unpaid subscription is fullypaid: Provided, further,That no
stock dividend shall be issued without the approval of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock
ata regular or special meeting duly called for the purpose.
Stock corporations are prohibited from retaining si
surplus profits
in excess of one hundred
percent (100%) of their paid-in capitalIstock,
except: (a) when justified by definite or
corporate expansion projects
programs approved by the board of when the
directors; or (b)
corporation is prohibited under any with financial
loan agreement
institutions or creditors, whether
local or foreign, from declaring
dividends without their been
consent, and such consent has not yet is
secured; or (c) when it can be
clearly shown that such reetention
necessary under special
circumstances obtaining in the corporation
such as when there
is need for special reserve for probable
contingencies.

330
 TITLE
IIV- POWERS OF CORPORATIONS

Paid-in Capital
The sum of the amount paid for shares of stock
issued, including the
paid-in capital(APIC) or
additional, premium pald over the par value of such
shares

RETAINED EARNINGS
The accumulated profits realized out of normaland continuous
operatíons
af the corporation after deducting therefrom distributions to stockholders and
sto capital stock or other accounts.
transfers

UNAPPROPRIA TED /UNRESTRICTEDRETAINED EARNINGs

The amount ofaccumulated profits and gains realized out of the normal
and continuous operations of the corporation after deducting therefrom
distributions to stockholders and transfers to capital stock or other accounts,and

which is:

1. Not appropriated by the Board of Directors (BOD)for definite corporate

expansion projectsor programs;
2. Not covered by a restriction for dividend declaration under a loan
agreement; and
3. Not required be retained under special circumstances obtaining in the
to

corporation,such aswhen there is a needfor a special reserve for probable

contingencies.

DIVIDEND
It refers to corporate profits allocated, lawfully declared by the
corporation tobe paid to the stockholderson demand or at a fixed time.

Retained Earnings Available forDividends

Dividends, whether cash, property, or stock, shall be declared out of
unrestricted retained earnings of the corporation. Accordingly, a corporation
cannot declare dividends has zero or negative retained earnings
when it

otherwise known as Retained Earnings Deficit. For such purpose, the

upon actual
surplus profits or income must be bona fide income founded
earnings orprofits. Theexistence, therefore, of surplus profits arising from
to the
the corporate business is a condition precedent
operation of
declaration of dividends.

be declared as dividend nor

Additional Paid-in Capital shall neither
except through an organizational
Shallit be reclassified to absorb deficiency
restructuring duly approved by the SEC.1?

Kequirements for the declaration of dividends

1. Existence of unrestricted retained earnings;
2.Resolution of the board of directors;and

12 SEC MC No,16 s. 2023

331
 CORPORATIONS
TITLE IV-POWERS OF
are.
additional requirements
dividends,the 2/3 of outstanding
3. For stock notlessthan capital;
a. A vote representing
have also a
sufficient number of and
must
b.A corporation to stockholders.
for distribution authortza
unissued shares
vs. Stock dividends
Cash dividends
Stockdfvidendg
Cash dividends It is part of capital.
It is part ofgeneral fund. It does not result in cash
It results in cash outlay. be outlay.
It can levied by
tolevy by corporate
It is not subject creditors because they Corporat,
are
creditors. part
of
corporate capital.

the Itis declared by the

It is declared by the majority of
majority of the
quorum of the board
of directors. of
quorum of the board with the directors
Concurrence of the

stockholders representing at least

2/3 of the outstanding capital stock
capital is increaso
It does not increase the corporate| The corporate

capital. is
debt from No debt created by
Its declaration creates a its

to each of its declaration.

the corporation
stockholders.

Payment of dividends is not a matter of right

Sec. 42 of the Revised Corporation Code prohibit the issuance of any

stock dividend without the approval of stockholders, representing not less

than two-thirds (2/3) of the outstanding capital stock ata regularor spetal
meeting duly called for the purpose. These provisions underscore
the fact

that payment of dividends to a stockholder is not a matter of right but a

matter of consensus.13

retained
Dividends is dependent upon the availability of unrestricted
earnings
The Corporation Code provides thatthe board of directors ofastock
retained
corporation may declare dividends only out of unrestricted
earnings. The Code, in Section 43 (Now Section 42, Revised Corporation
the

Code), adopting the change made in accounting terminology,substitutedterm

phrase "unrestricted retained earnings," precise
which may be a more Thus
in place of "surplus profits arisingfrom its business" in the former law.
of surnluS
the declaration of dividends is dependent ayailability
upon the
profit or unrestricted Preferences
retained earnings, as the case may be. upon
alien
grantedto preferred stockholders,
moreover, do not give them
the property of the corporation nor make them softhe corporation
creditors

13 Republic Planters Bank vs. Hon. 3, 1997.

Enrique Agana, Sr., etal., G.R. No. 51765, March
A.
332
 TITLE
IV-- POWERS OF
CORPORATIONS

of the former
the right being always
only when subordinate tothe latter. Dividends are
thus payable there are profits
rule, even ifthere earned by the corporation and as a
general are existing
proflts, the board of
discretion to determine whether ornot directors has the
dividends are to be decared14
valued at theamount
Dividends ofthe declared
Dividends, regardless of the dividend
form these are declared,
or stockS, are
valued at the amount that is, cash,
property of the declared
from the unrestricted retained earnings dividend taken
of a corporation.
in the case of a stock Thus, the value of
the declaration dividend is the actual value of the
of said stocks.
original issuance In G.R No.127937the
Court said that "in the
case of stock dividends, it is theamount that
the corporation transfers from
ts surplus profit account to its capital
account" or "it is the amount that the
receives in consideration of
corporation the original issuance of the shares."
Itis "the distribution of
current or accumulated earnings to the
shareholders
of a corporation pro rata based on
the number of shares owned." Such
distribution in whatever form is
valued at the declared amount or
monetary
equivalent.

Thus, it cannot be said that no consideration is involved in

the
issuanceof stock dividends. In fact, the declaration of stock dividends is akin
to a forced purchase of stocks. By declaring stock dividends,
a corporation
ploughs back a portion ofits entireunrestrictedretained earnings either to its
working capital or forcapital asset acquisition or investments.It is simplistic
to say that the corporation did not receive any actual payment for these.

When the dividend is distributed,it ceases to be a property ofthecorporation

as the entire or portion ofits unrestricted retained earnings is distributedpro

rata to corporate shareholders.

When stock
dividends are distributed,the amount declared ceases
to belong to the corporation but is distributed among the shareholders.
Consequently, the unrestricted retained earnings of the corporation are
diminished by the dividend while the stockholders'
amount of the declared
equity is increased. Furthermore, the actual
payment is the cash value from
that each shareholder foregoes for
the unrestricted retained earnings
additional stocks/shares which he would
otherwise receive as required by
to the
the Corporation Code to be given to the stockholders subject
aVailability and conditioned
on a certain level of retained earnings. Elsewise
are more than
put,where the unrestricted retained earnings of a corporation
Directors is
stock, the corporate Board
of
100% of the capital
paid-in
the shareholders will receive in cash
andated to declare dividends which which in the latter
property or stock dividends,
ess otherwise declared as or stocks.
Case the stockholders
are forced to forego cash in lieu of property

March 3, 1997.
G.R. No. 51765,
4 Sr., et.al.,
Republic Planters Bank Hon. Enrique Agana,
A.
vs.
333
 TITLEIV- POWERS OF CORPORATIONS

by reeceiving
In essence,therefore,the stockholders stock
monetary value their
are forced to exchange the dividendfor of

the dividend,
and the monetary valuethey forego is considered actual capital
payment stock.
issuance of the stockS given as dividends,
15
original for
the

Capital and Stock Dividends

The Court's disquisition in G.R. No. 127937 entitled
Telecommunications Commission v. Honorable Court of Appeals,viz: National

The term "capital" and other terms used to describe the

structure of a corporation are of universal
acceptance and their capital

have long been established in jurisprudence. Briefly, capital usages

refers to
the
value of the property or assets of a corporation. The capital
the total amount of the capital that persons (subscribersor subscribed is

shareholders)
have agreed totake and pay for, which need not necessarily by,
andcan be
more than, the par value of the shares.In fine, it is the amount
that the
corporation receives, inclusive of the premiums if any, in consideration f
the original issuance of the shares.In the case of stock dividends, itie
amount that the corporation transfers fromits surplus profit accountto it
capital account. It is the same amount that can be loosely termed as the

"trust fund"of the corporation. The "Trust Fund" doctrine considers ttt
subscribed capital as a trust fund for the payment of the debts of the
corporation,to which the creditors may look for satisfaction. Until the
liquidationof the corporation, no part of the subscribed capital may be
returned or released to the stockholder (except in the redemption of
redeemable shares) without volating this principle. Thus, dividends must
never impair the subscribed capital; subscription commitments cannot be
condoned or remitted; nor can the corporation buy its own shares using the
subscribed capitalas the considerations therefor.16

Limitations on Dividends
1.The right todividend is based on duly recorded
stockholdings.
2. Dividends among stockholders of thesame class must
always be prorata
equal and without discrimination and regardless of the time when the
shares were acquired. The right of thestockholder to be dividends
paid
accrues as soon asthe declaration is made.
3.The right to dividend accrues even if there is no SEC
approval.
4. Declaration of dividendssis
discretionaryupon the board of directors.
5. Dividends cannot be
declared out of paid-in surplus and reevaluation
surplus.
6.Treasury shares cannot be declared as stock or cash dividends.

No.
15 Philippine Long Distance G.R.
Telephone Company vs. National etal.,
152685, December4, 2007. Telecommunications Commission,

G.R. No.
16 Philippine Long Distance Telephone Company vs. National et.al,
Telecommunications Commission,
152685,December 4, 2007.

334
 TITLE IV -1 POWERS OF
CORPÖRATIONS

General Rule:
Stock
corporations are prohibited
oNcess of 100%of from retainíng
their paid-in surplus profits in
capital stock.

Exceptions:
1.When justified
by
definite corporate
approved by the board of exnanslon prolects or
directors; programs
2.When the
corporation is prohibited
under any
financialinstitution
or creditor,whether local loan aareement with any
dividends without orforeign,from declaring
its/his consent, and
secured; or such consent has not yet
been
3.When it can be
clearly shown that
such retention is
special circumstances necessary under
obtaining in the
is need for corporation, such as when
special reservefor there
probable contingencies.
Problem:
Y Corp. secureda loan from X
Bank in the amount of
As part of the proceeds of P120,000.
the loan,preferred shares of
to X Bank, through stockswere issued
its officers' B and
one C. In other words, instead
giving the legal tender of
totaling to the full amount
of the loan, which is
P120,000, X Bank lent such amount
partially in the form of
partially in the form of money and
stock certificates, each for
value of P10 per share, or for 400 shares with a par
P4,000 each, foratotal of P8,000.Said stock
certificates were in the name of B and C, who
endorsed his shares in
subsequently,however,
favorof B.

Said certificates of stock bear the following

terms and conditions:

ThePreferred Stock shallhave the following rights,

preferences,
qualifications and limitations, to wit:
1. Of the right to receive a quarterly dividend of 1%, cumulative and
participating.

XXX
2. That such preferred shares may be redeemed, by the system of drawing
time after2years from the date of issue at the option of the
lots, at any

Corporation xxx.

Afterwards, Y Corp. proceeded against X Bank and filed a

Complaint anchored on Y Corp.'salleged rights to collect dividends under
the preferred shares in
question.

335
 IV- POWERSOF
CORPORATIONS
TITLE

Answer: the issuance of

Law prohibits any
The Corporation ofstockholders,Jrepresenting not) stock
without the annroval Jess2/3
dividend or special meeting
at a regular
outstanding capitalstock the fact that dulycalled
ofthe underscore
These provisions a matter of right but apayment
for the purpose. is not
a stockholder mater of
dividends to stocks". on
"interest bearing which
consensus. Furthermore, before dividends the
to pay interest arepaid
agrees absolutely construed as
corporation is legal only when
common stockholders, requiring
to
as dividends
from net earnings or surplus only.17
of interest
payment
Contract. No -
into Management
SEC. 43. Power to
Enter corporation
contract with another corporation unless
shallconclude a management
board of directors and by stockhold
such contract is approved by the
outstanding capital stock, or hy
owning at least the majority of the
least a majority of the
members in the case of a nonstock corporation,
at a meeting du
of both the managing and the managed corporation,
called for the purpose: Provided, That
(a) where a stockholder o
interest of both the managing and
stockholders representing the same
(1/3)of
the managed corporations own or control more than one-third
the total outstanding capital stock entitled to vote of the managing
board of
corporation; or (b) where a majority of the members of the
directors of the managing corporation also constitute a majority of the
members of the board of directors of the managed corporation, then the
management contract must be approved by the stockholders of the
managed corporation owning at least two-thirds (2/3) of the total
outstanding capital stock entitled to vote, orby at leasttwo-thirds (2/3)
of the members in the case of a nonstock corporation.
These shall apply to any contract whereby a corporation
undertakes to manage or operate allor substantially all of the business
of another corporation, whether such contracts are called service
contracts, operating agreements or otherwise: Provided, however, That
such service contracts or operating agreements which relate to the
exploration, development, exploitation or utilization of natural
resources may be entered into forsuch periods as may be
providea by
pertinentlaws or regulations.
No management contract shallbe entered into for a
period longe
than five (5)
years for any one (1) term.

Management contract
Itis an agreement
whereby a
corporation
affairs to another delegates the mmanagementtofits
corporation for a certain
contract shall be entered into for period of time. No management
a period
longerthan five yearsfor any one term.
17 Republic Planters
Bank vs. Hon. Enrique A. Agana,
Sr., etal., G.R. No. 51765, March 3,
1997.
336
 TITLE IV. - POWERS OF
CORPORATIONS

Any contract whereby a corporation undertakes tomanage or operate

all
all of the
or substantially business of another
corporation, whether such contracts
Iservicecontracts,operating
are called agreements or otherwise.

Note:
The above section refers only to a
management contractwith another
corporation. Hence, it does not apply to
management contractsentered into
by a corporation with natural persons.

Requirements:
1.Approval by the majority of thequorum of theboard
of directors;
2. Ratification by the stockholders owning at least the majority of
the
outstanding capital stock, or by at least a majority of the
members in the
case of a non-stock corporation, of both the
managing and the managed
corporation, at a meeting duly called for the
purpose; and
3.Approval by the stockholders of the managed
corporation owning at
least two-thirds (2/3) of the total outstanding capital stock
entitled to
vote, or by at least two-thirds (2/3) of the members in the case of a
non
stock corporation, in cases of:

a. Interlocking stockholders
Where a stockholder or stockholders representing the same
interest of both the managing and the managed corporations own or
control more than 1/3 of the total outstanding capital stock entitled to
vote of themanaging corporation.

b. Interlocking directors
Where a majority of the members of theboard of directors of
themanaging corporation also constitutea majority of themembers of
the board of directors ofthemanaged corporation.

4. No management contract shall be entered into for a period longerthan five

years for any one term.

Exception:
to
Service contracts or operating agreements which relate
the exploration, development, exploitation or utilization of natural
resources may be entered into for such periods as may be
provided

by the pertinent laws or regulations.

SEC, 44. Ultra Vires Acts of Corporations. -No corporation shall possess
than those conferred by this Code
exercise corporate powers other
Or by its articles of incorporation and except as necessary
or incidental
to the exercise of the powers conferred.

337
 À ig)

OF CORPORATIONS
TITLE IV-POWERS

What is ultra vires act?

outside or
to an act
vires refers beyond
The term ultra such powers but corporate
ostensibly be within
including thosethat may are,
The Cornoration Code a by powers,
or declaredillegal. generalor
special laws, prohibited hy the Code or bydefines
the powers Conterred Qn
the
act as one outside ultro
vires or to incidental
Incornoration. or bevond what is necessary Articles
ot
special laws governing theexercise of
Moreover, certain the
pOwers sO conferred.
Act, also grant specific classes
like the Condominium corporate
corporations,
ppowers to
corporations falling
undersuch special laws.18

act refersto one which

In legal parlance, "ultra vires" isnot
the corporate powers conferred by the Corporation Code
within
or
or incidental in theexercise
articles of
incorporation or not necessary of
the powers
so
conferred.

16Twin Towers
Condominium Corporation vs. CA,etal., G.R.
No. 123552,
February 27,2003.
338