E. Doctrine of Corporate Opportunity-Sec.

33
Section 33. Disloyalty of a Director. - Where a director, by virtue of such office,
acquires a business opportunity which should belong to the corporation, thereby
obtaining profits to the prejudice of such corporation, the director must account for
and refund to the latter all such profits, unless the act has been ratified by a vote of the
stockholders owning or representing at least two-thirds (2/3) of the outstanding capital
stock. This provision shall be applicable, nothwithstanding the fact that the director
risked one's own funds in the venture.
1. Doctrine of Corporate Opportunity
-Sec 33 is consistent with the duty of loyalty of a director
-the duty of loyalty mandates that directors should not give preference to their own
personal amelioration by taking the opportunity belonging to the corporation.
When may Sec. 33 shall apply: BNIT
1. A business opportunity which the corporation is financially able to exploit
2. From its nature, the business opportunity is in line with the corporation’s
business;
3. The corporation has an interest or a reasonable expectancy in the business
opportunity; and
4. By taking the business opportunity as his own, the director will thereby be
placed in a position inimical to his duties to the corporation.
-the law does not permit this even if he will use his own funds in the venture.
-however, no criminal liability attaches to the offending director.
 This Doctrine rests fundamentally on the unfairness , in particular
circumstances , of an officer or director taking advantage of an opportunity for
his own personal profit when the interest of the corporation justly calls for
protection.
 The prohibition no longer applies if the action was made after the resignation
of the director. Neither does it apply to cases when two related corporations
are involved even if there is interlocking directorship.
2. Tests. ILFM
a. interest or expectancy test
-it precludes acquisition by corporate officers of the property of a business
opportunity in which the corporation has a “breachhead” in the sense of legal or
equitable interest.
-it is more restrictive type of test.
b. Line of business test
-characterizes an opportunity as a corporate whenever a managing officer becomes
involved in an activity related with the activities of the corporation.
-the phrase “in the line of business” has a flexible meaning that is to be applied
reasonably and sensibly to the facts.
C. fairness test
-it determines the existence of a corporate opportunity by applying ethical standards
of what is fair and equitable under the circumstances.
d. Mixed test
-apply any two of the tests.
 Either the fairness test or the mixed test can be applied in this jurisdiction
 Line of business cannot be strictly applied because there is no wholesale
prohibition for a director to engage in the same line of business.
3. Burden of Proof
- the BOP on good faith and fair dealings rest upon the officer who appropriated the
business opportunity for his own advantage.
4. profits.
-director must account for and refund to the corporation all profits which may belong
to the corporation, in the prejudice of the corporation.
-the theory is the profit obtained by the agent belongs to the principal.
5. Ratification
-the corporation may choose to ratify the acts of the director which requires a vote of
2/3 of the OCS.
6. Financial Capability
-property or business opportunity ceases to be a corporate opportunity and is
transformed into personal opportunity where the corporation is definitely no longer
able to avail itself the opportunity caused by financial insolvency or legal restrictions
or any factor that prevents the corporation from acting upon the opportunity.
=the director must make positive steps to show that such opportunity was presented to
the availment of the corporation.
7. Trustees and officers not covered.
-directors only and not applicable to trustees because non-stock corpo is not supposed
to be engaged in business as main purpose.
-however, still they are prevented from unduly taking corporate opportunity
-unless there is a specific statutory provision requiring stockholder’s ratification, the
Board ratification is sufficient to cure any defect in the transaction.
F. Executive, Management and other Special Committees-Sec. 34

Section 34. Executive Management, and Other Special Committees. - If the bylaws so

provide, the board may create an executive committee composed of at least three (3)
directors. Said committee may act, by majority of vote of all its members, on such
specific matters within the competence of the board, as may be delegated to it in the
bylaws or by majority vote of the board, except with respect to the:

(a) approval of any action for which shareholders' approval is also required;

(b) filling of vacancies in the board;

(c) amendment or repeal of bylaws or the adoption of new bylaws;

(d) amendment or term is not amendable or repealable; and

(e) distribution of cash divendends to the shareholders.

The board of directors may create special committees of temporary or permanent

nature and determine the members' term, composition, compensation, powers, and
responsibilities.

1. Purpose
-The RCCP allows the creation of an executive committee because the Board may not
readily face the contingency of confronting urgent matters that require its attention.
2. By-laws
-the executive committee can only be created by a virtue of a provision in the by-laws,
the Board cannot in the absence of a provision in the by-laws.
3. Composition
-the executive committee must be composed of not less than 3 members of the Board,
to be appointed by the Board
-there can be members of the executive committee who are not directors provided that
at least three members are directors
-it is common to have a management committee composed of key executives, some of
whom are not members of the Board.
 A foreigner can be a member of the executive committee in proportion to the
foreign shareholdings in the corporation.
4. Authority
-the Exec. Comm. has all the authority of the Board to the extent provided in the
resolution of the Board or in the By-laws.
-the resolutions passed and approved by the EC are as valid as the resolutions of the
board so long as it has been made at the time the committee is constituted.
--there must be no undue abdication of the board.
-the rights of the minority should not be impaired
-the Board cannot delegate the entire supervision and control of the corporation to the
EC because it is contrary to law and charter which requires that the directors shall
have general supervision and control of the corporation.
-the decision of the EC is not subject to appeal to the Board.
-EC’s resolution are valid and unappealable but the Board may ratify the resolution of
the EC if invalid. However it can be repealed by Board resolution.
5. Quorum
--majority of the group constitutes the quorum
6. Required Vote.
-the majority vote requirement for an executive committee shall be interpreted to
mean majority of all the committee members, regardless of the classification of the
membership into director/member or non-directors/non-members.
7. De Facto Officers.
-if the committee was not validly constituted, the members thereof maybe considered
de facto officers.
8. Board Committees.
-the Board can create committees to give help to the Board.
9. Code of Corporate Governance.
-Corpos covered by CCG are required to create an Audit Committee.
-The Board may also create a Nominations Committee and a Remuneration or
Compensation Committee to assist its corporate governance.

X. Corporate Powers
A: Doctrine of Limited Capacity: Concept of Ultra Vires Act-Sec.44
Doctrine of Limited Capacity
-The corporation has limited power to invest in other corporations
-It has only such powers as are expressly and impliedly granted and incidental to its
existence.
-It may perform only those acts provided by its by-laws.
Concept of Ultra Vires Act.
Section 44. Ultra Vires Acts of the Corporations. - No corporation shall possess or
exercise corporate powers other than those conferred by this Code or by its articles of
incorporation and except as necessary or incidental to the exercise of the powers
conferred.
1. Concept
-An ulta vires act is one committed outside the object for which a corporation
is created as defined by the law of its organization and therefore beyond the
powers conferred upon it by law.
-It also include those acts that may ostensibly be within such powers but are,
by general or special laws, either proscribed or declared illegal.
1. 01. Presumption of Validity.
-It is presumed that corporate acts are valid if, on their face, the acts were
within the corporation’s powers and purposes.
-The doctrine of ultra vires, when invoked for or against a corporation, should
not be allowed to prevail where it would defeat the ends of justice or work a legal
wrong.
2. Distinguished from other Acts.
Ultra Vires Acts Unlawful Acts
Not illegal but merely beyond the powers Against the law, morals, or public order,
of the corporation to perform public policy
Voidable Void and unenforceable
Produces effects Cannot produce legal effects
Can be ratified or express or implied Not susceptible of ratification
assent by the stockholders or by reason of
estoppel of the corporation or the other
party to the transaction to raise objection,
particularly where the benefits are
retained

-A corporate officer entrusted with general management and control of the business
has the implied authority to act or contract for the corporation that may be necessary
or appropriate to conduct the ordinary business.
-if the act of corporate officers comes within corporate powers but it is done without
any express or implied authority therefor from the by-laws, board resolutions or
corporate practices, such an act does not bind the corporation.
 Ultra vires acts are not necessarily “patently unlawful acts”
 Hence, the directors are not personally liable under Section 30 just because the
contract that they signed is ultra vires.
3. Effects of Ultra Vires Acts.
-third persons dealing with corporations cannot assume that corporations have
powers. It is up to those persons dealing with corporations to determine their
competence as expressly defined by the law and their articles of incorporation.
To summarize:
1. A corporation that is engaged in ultra vires business is liable for torts
committed by its agents within their authority in the course of that business.
2. If the corporation acted outside its authority in taking or holding title to
property, the validity of the Torrens Certificate of Title cannot be questioned
on the ground that the corporation was without authority or exceeded its
authority in taking or holding the property.
3. When the contract is fully executed on both sides, the contract is effective and
will stand as a foundation of rights acquired under it.
4. When the contract is executory on one side and has been fully performed on
the other, the party who has received benefits from the performance is
estopped in claiming that the contract is ultra vires.
5. When both contracts are wholly executory on both sides, neither party can
maintain an action. The rule is justified since the only injustice that will be
caused is loss of prospective profits but the protection of the stockholders may
be a sufficient ground to enjoin the performance of the act.
3.01. Voidable.
-Unauthorized acts that are merely beyond the powers of the corporation under its
articles of incorporation are not void ab initio.
-They are merely voidable and may become binding and enforceable when ratified by
the stockholders.
 An ultra vires act can be ratified and parties may be estopped from raising
such defense.
 It can be ratified so long as the corporation was aware of the transaction
allegedly ratified.
 Ratification must be knowingly and voluntarily done.
 The effect of ultra vires contracts for both partially executed and wholly
executed contracts stated earlier can still be maintained on the basis of
estoppel
 Estoppel cannot be invoked against the State. Thus, the certificate of
incorporation may be revoked by the SEC if the concerned corporation
performs ultra vires acts.
 Performance of such violates the contract between State and the corporation.
B. Classes of Corporate Powers
 Kinds of Powers
1. express powers
2. implied powers
3. incidental powers

1. Express
- Those powers expressly provided by the RCC, applicable special laws,
administrative regulations, and the Articles of Incorporation.
-The express powers are:
a. the general powers under Section 35

-- Section 35. Corporate Powers and Capacity. - Every corporation 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 in accordance with the provisions of

this Code;

(e) To adopt bylaws, not contrary to law, morals or public policy, and to
amend or repeal the same in accordance with this Code;

(f) In case of stock corporations, to issue or 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 nonstock corporation;

(g) 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;

(h) To enter into a partnership, joint venture, merger, consolidation, or any

other commercial agreement with natural and juridical persons;

(i) To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar
purposes: Provided, That no foreign corporation shall give donations in aid of
any political party or candidate or for purpose s of partisan political activity;

(j) To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers, and employees; and

(k) 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.

b. the specific powers under Sections 9, 15, and 36 to 43 of the RCCP

-- a. To have perpetual existence unless its articles of incorporation provides
otherwise (S11)
b. To amend the articles of incorporation (S15)
c. To extend or shorten corporate term (S36)
d. To increase or decrease capital stock (S37)
e. To incur, create , or increase bonded indebtedness (S37)
f. To deny preemptive right (S38)
g. To sell or dispose assets (S39)
h. To acquire own shares (S40)
i. To invest corporate funds in another corporation or business or any other purpose
(S41)
j. To declare dividends (S42)
k. To enter into management contract (S43)
 the powers expressly provided for in the RCCP are deemed part of the Articles
of Incorporation even if such powers are not enumerated therein.
2. Implied.
Corporations are empowered 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.
-embodied in 35(k) “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.
Doctrine of Necessary Implication
- Every statute is understood, by implication, to contain all such provisions as may be
necessary to effectuate its object and purpose, or to make effective rights, powers,
privileges or jurisdiction which it grants, including all such collateral and subsidiary
consequences as may be fairly and logically inferred from its terms. Ex necessitate
legis. And every statutory grant of power, right or privilege is deemed to include all
incidental power, right or privilege.
3. Incidental.
-- Those powers that are deemed conferred on the corporation because they are
incidental to the existence of the corporation.
REASON: Corporations exist as juridical persons.
a. Right to succession
b. Right to have a corporate name
c. Right to make by-laws for its government
d. Right to sue and be sued
e. Right to acquire and hold properties for the purposes authorized by the charter
3. Test to determine if power is implied.
-powers merely convenient or useful are not implied if they are not essential, having
in view the nature and object of the corporation.
-whether the act in question is in direct and immediate furtherance of the
corporation’s business, fairly incident to the express powers and reasonably necessary
to their exercise. If so, the corporation has the power to do it, otherwise not.
-in construing the powers of the corporation, the language of the charter should in
general neither be construed strictly nor liberally but according to the fair and natural
import of it, with reference to the objects of the corporation.
4. Stretching the Purpose Clause.
-it is legal to stretch the meaning of the purpose clause to cover new and unexpected
situations.
-no more need to amend AOI to accommodate new situations.
Example: A provision in the AOI allowing the corporation to “affiliate or contract
with other local and international organizations” may be stretched and construed in
such a way as to allow the corporation to remit donations to a foreign organization.

C. STATUTORY POWERS AND LIMITATIONS ON THEIR EXERCISE

Section 35. Corporate Powers and Capacity. - Every corporation 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 AOI in accordance with the provisions of this Code;

(e) To adopt By-Laws, not contrary to law, morals, or public policy, and to amend or repeal the same
in accordance with this Code;

(f) In case of stock corporations, to issue or 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;

(g) To purchase, receive, take or grant, hold, convey, 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;

(h) To enter into partnership, joint venture, merger, consolidation, or any other commercial agreement
with natural and juridical persons;
(i) To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Provided, That no foreign corporation shall give
donation in aid of any political party or candidate or for purposes of partisan political activity;

(j) To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers
and employees; and

(k) To exercise such other powers as may be essential or necessary to carry out its purpose or
purposes as stated in the AOI.

1. GENERAL POWERS (Section 35)

- RULE: The Board exercises the general powers of the corporation.

- GR: Approval of a resolution by the Board is enough for the exercise of such powers.

- Sec. 52 - every decision of at east a majority of the directors or trustees present at a meeting at which
there is a quorum shall be valid as a corporate act; XPN: election of officers which shall require the
vote of a majority of ALL members of the Board.

GENERAL POWERS:

A. POWER TO SUE AND BE SUED

 One of the incidental powers of the corporation.

 “The power is granted to a duly organized corporation, unless specifically revoked by

another law.”

 Exercised by the corporation through the Board and/or its duly authorized officers and
agents.

 Generally, corporations are required to attach a copy of the Board Resolution authorizing the
filing of the complaint or petition.

 1997 Rules of Civil Procedure and Supreme Court Circular 28-91 - require the parties
themselves to sign and submit a certificate on non-forum shopping. (NOTE: This req cannot
be imposed directly on artificial persons, like corporation, because they cannot personally do
the task themselves.)

 The rules do not require corporate officers to sign the certificate; no prohibition against
authorizing agents to do so.

 What is important is that there is a Board Resolution giving such authority.

 If no power of attorney, secretary’s certificate/ Board Resolution is attached to the petition or

complaint - pleading is NOT properly verified and should be treated as an unsigned
pleading.

 A person who alleges that he is duly authorized to file an action must present a resolution
issued by the Board that specifically authorized him to institute the action and execute the
certification against forum shopping. Only then would his actions binding on the
corporation.

 Implied authority is not acceptable for purpose if complying with the requirement on the
submission of the certification against forum shopping. REASON: ONLY A DULY
CERTIFIED COPY OF THE BOARD RESOLUTION IS ACCEPTABLE AS A FORMAL
REQUIREMENT.
  NOTE: May mga exceptional cases where the SC dispensed with the requirement of
submission of a Board Resolution.

 Cagayan Valley Drug Corporation vs. CIR - the following officials or employees
of the company can sign the verification and certification without need of a borad
resolution:

a. The Chairperson of the BOD;

b. The President of a corporation;

c. The General Manager or Acting General Manager;

d. Personnel Officer; and

e. An Employment Specialist in a labor case.

(Rationale behind the rule: these officers are in a position to verify the truthfulness and
correctness of the allegations in the petition.)

B. POWER OF SUCCESSION

- Power and capacity to have perpetual existence unless the certificate of incorporation provides
otherwise.

- If no fixed term - the right of the corporation to exist continues until it is dissolved.

C. POWER TO ADOPT AND USE A CORPORATE SEAL

- This power can be traced in ancient common law where all actions of the corporation were required to
be under seal.

- RCCP: A seal is not indispensable for the transactions or contracts of a corporation.

- Document may be considered valid and binding even in the absence of a seal.

- XPN: Seal is necessary with respect to the certificate of stocks as provided for under Section 62 of the
RCCP.

D. POWER TO AMEND AOI

- This power must be in accordance with the provisions of the RCCP. (Sec. 15)

E. POWER TO ADOPT BY-LAWS

- Corporation’s life may start even without the By-Laws.

- Review: By-Laws may be filed after incorporation.

- By-Laws are meant to regulate the manner of conducting the internal affairs of the corporation.

- Sec. 35(3) - the power to adopt, amend or repeal by-laws is subject to the condition that the by-laws
must not be contrary to law, morals, or public policy.

F. POWERS REGARDING SHARES AND MEMBERSHIP

- The subscribers, and not the stock corporation, are the owners of the shares therein.

- However, the corporation has certain powers relating to shares including:

a. Power to issue previously unsubscribed shares;

b. Power to sell treasury stocks;

c. Power to sell delinquent shares;

d. Power to acquire its own shares in proper cases;

e. Power to redeem redeemable shares;

f. Power to increase or decrease the par value of shares; and

g. Power to resort to stock split.

- Non-stock corporation has the power to admit embers to the corporation. The corporation may
prescribe the qualification of members and grounds for their disqualification.

G. TO ACQUIRE, SELL, LEASE OR OTHERWISE DEAL WITH REAL OR PERSONAL

PROPERTY)

- See: Section 35 (g)

- Vested in the BODs

- Corporations may appoint agents to negotiate for the purchase of real property, BUT the final say will
have to be with the Board, whose approval will finalize the transaction.

- If the power to sell land is conferred to an agent - there must be a written contract of agency for such
purpose and the SPA, including the board resolution, must expressly confer such specific power to sell
the specified parcel of land.

Effect if the power is not expressly conferred: sale is not binding on the corporation even if the buyer
already made a deposit.

- The Board can exercise this power [Section 35(g)] without the concurrence of the stockholders.

Stockholders’ approval necessary only in cases covered by Section 39 - sale of all or substantially all of
the assets) and Section 41.

2 basic reqs: corporation can deal with real or personal property:

1. It must be reasonably and necessarily required by the transaction of the lawful business of the corpo;
and

2. It is subject to limitations prescribed by law and the Constitution.

Note: The by-laws may expressly require the approval of the stockholders for the sale of the corporate
property. If no number of votes required under the by-laws - majority of the OCS is sufficient to
approve the sale.

Temporary lease allowed even if the corpo is not engaged in the business of leasing. Reqs imposed by
the SEC:

1. The property is not presently used by the corpo and leasing the property is not made on a regular
basis;

2. Leasing the property will make it productive instead of allowing them to remain idle;

3. There is no express restrictions in the AOI and By-Laws; and

4. Leasing the property is not used as a scheme to prejudice corporate creditors or result in the
infringement of the trust fund doctrine.

- The corpo can acquire usufruct over an immovable property. LIMITATION: Art. 605 of the NCC -
usurfruct cannot be constituted in favor of a corporation for more than 50 years.

Effect of dissolution before the expiration of the period of usufruct: the usufruct shall be extinguished
by reason thereof.

Usufruct is meant only as a lifetime grant. Corpo’s lifetime may be extended - usufruct may also be
extended.

H. TO ENTER INTO MERGER, CONSOLIDATION

- Section 35(h)

Merger - occurs when one corpo absorbs another constituent corporations

Consolidation - when two or more corpos form a new single corpo

Rules on merger and consolidation - Sections 75-79, RCCP.

I. TO ENTER INTO A PARTNERSHIP AND JOINT VENTURE

- No express prohibition for corporations to enter into a partnership under the Corporation Code and
the NCC but the doctrine of under the same laws was that a corporation, as a general rule, CANNOT
BE A MEMBER OF A PARTNERHSIP IN THE ABSENCE OF EXPRESS AUTHORIZATION BY
THE STATUTE OR CHARTER.

BASIS OF THE LIMITATION: Public policy since in a partnership, the corpo would be bound by the
acts of persons who are not its duly appointed and authorized agents and officers - inconsistent with the
policy of the law that the corpo shall manage its own affairs separately and exclusively.

Mendiola v. CA - justifications for the prohibition:

1. The mutual agency between the partners would be inconsistent with the policy of the law that the
corpo shall manage its own affairs separately and exclusively; and

2. Such arrangement would improperly allow corporate property to become subject to risks not
contemplated by the stockholders when they originally invested in the corpo.

Note: SEC allowed corpo to enter into a partnership but it required that the agreement on the AOI
must provide that all the partners manage the partnership and the same AOI must stipulate that all
partners shall be jointly and severally liable for all obligations of the partnership.

 This opinion was abandoned by the sec and allowed corpos to be a limited partners only.

 RCCP [Sec. 35 (g)] - a corpo can now join a partnership whether limited partnership or not.

J. TO ENTER INTO A JOINT VENTURE

Joint venture - organization formed for some temporary purpose.

Similar elements (partnership)

1. Community of interest;

2. Sharing profits and losses;

3. Mutual right of control.

K. TO MAKE REASONABLE DONATIONS

GR: Stock corpo is not allowed to donate portions of its assets

XPN: There is an express grant of power

(Consistent with Corporate Responsibility Theory) - RCCP now allows corpos to make donations -
REQS:

1. the donation must be reasonable;

2. The donation must be for a valid purposes including public welfare or for hospital, charitable,
cultural, scientiic, civic, or similar purposes; and

3. If the corpo is a foreign corpo, the donation must not be in aid of any political party or candidate or
for purposes of partisan political activity.

The corpo is likewise empowered to accept donations when it is necessary to carry out its express
powers.

 Allowed to accept donation to enhance its community development projects as an exercise of

implied power - REQ:

 There must be compliance with Act No. 4075, as amended by PD No. 1564 and the
rules issued by the DSWD.

L. TO GIVE DONATIONS FOR PARTISAN POLICAL ACTIVITY

- Prohibition to donate to candidates limited to foreign corpos.

- by implication, domestic corpos are allowed to make contributions to candidates and for partisan
political activities.

Independent expenditure - political speech presented to the electorate that is not coordinated with a
candidate. (p.442-443)

M. TO ESTABLISH PENSION, RETIREMENT, AND OTHER PLANS

- stockholders’ approval - not necessary

- Retirement fund established by the corpo may gain tax exempt status under the NIRC

- new provision

Gratuity - bounty or gift given in return for a favor or services; may be in the form of remunerative
donation.

OTHER POWERS:

- Corpos have the power to hire employees, engage the services of contractors, open bank accounts,
and other matters that are necessary for its operations.

A. TO BORROW MONEY - Auxiliary to the primary purposes of the corporation.

- Board reso - necessary because a SPA is necessary to confer such power under Article 1878 of the
NCC.
- only duly authorized representative may secure loans in behalf of the corpo

- if the loan is the personal debt of the corporate officer - corpo is not liable to pay the loan

B. TO ACT AS SURETY OR GUARANTOR

GR: corpo may not ordinarily be bound by a contract of guarantee or surety for the benefit of third
persons.

In the absence of an express power in the AOI, the power to act as surety or guarantor cannot be
justified under Sections 2, 35, and 44 of the RCCP.

Such power - not necessary nor an incidental power.

The corpo cannot act as an accommodation party in a negotiable instrument.

- not bound by a signature that will made it an accommodation maker, drawer or indorser of the
instrument.

- issuance or indorsement of a negotiable instrument without consideration and for the accommodation
of another - ultra vires.

C. TO MORTGAGE

- Corporate assets may be mortgaged by authorized directors or officers on behalf of the corporation as
owner, as the transaction of the lawful business of the corpo may reasonably and necessarily require.

Corpo can mortgage its properties for the obligations of another corpo which is not its subsidiary;
REQS:

1. There is no express restriction in the AOI ns By-Laws;

2. The purpose of the mortgage is not illegal;

3. Consent of all the corporate creditors and stockholders must be secured;

4. The transaction is not used as a scheme to defraud or prejudice corporate creditors or result in the
infringement of the Trust Fund Doctrine;

5. The mortgage will not hamper the continuous business operation of the corpo; and

6. The accommodated third party involved in the mortgage is financially solvent and capable of paying
its obligations.

Practice of Profession

- certain professions are allowed to incorporate corporations for the pursuit of their respective
professions

The 11th Foreign Investment Negative List - enumerates the professions where corporate practice is
allowed subject to the pertinent conditions and reqs imposed by the specific regulatory statutes that
apply to them:

1. Aeronautical engineering

2. Agricultural and biosystems engineering;

3. Architecture;

4. Chemistry;

5. Electronics engineering;

6. Environmental planning;

7. Forestry;

8. Guidance and counseling;

9. Interior design;

10. Landscape architecture;

11. Naval architecture;

12. Psychology;

13. Real estate service;

14. Sanitary engineering;

15. Social work.

SPECIFIC POWERS

A. AMENDMENT OF AOI

AMENDMENT OF AOI (Sec. 15)

Requirements FOR AMENDMENT OF AOI:

1. The amendment must be for legitimate purposes and must not be contrary to other provisions
of the RCCP and special laws;
2. The amendment must be approved by a majority vote of the BODs or Trustees;
3. There must be a vote or written assent of the stockholders representing at least 2/3 of the
outstanding capital stock, or in case of a non-stock corporation, the vote or written assent of at
least 2/3 of the members;
4. The original and amended articles together shall contain all provisions required by law to be
set out in the AOI. The amendments of the AOI shall be indicated by underscoring the change
or changes made;
5. A copy of the amended AOI shall be duly certified under oath by the corporate secretary and a
majority of the directors or trustees, stating the fact that the amendment/s have been duly
approved by the required vote of the stockholders or members. The amended articles with the
certification shall be submitted to the SEC;
6. The amendment must be approved by the SEC.

GR: Written assent solicited by the board even without meeting is sufficient. (p. 232)

XPNs:
 - Amendment of the AOI to extent or shorten the corporate term and in case of an amendment
involving an increase or decrease of the capital stock – in these cases, the RCCP requires
approval in a meeting of the shareholders.
- Amendment of the by-laws – requires a regular or special meeting of shareholders for its
approval. (p. 232)

Who can question the amendments? (p. 232)

- Real party-in-interest only like shareholders or members

Effectivity of the Amendments: (Sec. 15 [3])

1. Upon approval by the Commission; or

2. From the date of filing with the SEC if not acted upon within 6 months from the date of filing
for a cause not attributable to the corporation.

B. EXTENDING/SHORTENING OF CORPORATE TERMS

GR: Perpetual existence

XPN: AOI provides otherwise

Power to extend the corporate term is not an inherent right.

The perpetual term of a corpo is just a concession of the State.

Shortening can be done at the discretion of the corporation through any of the modes of dissolution
under Sections 133 - 139, RCCP

REQS - extension and shortening of the corporate term:

1. The action must be approved by a majority vote of the BOD/Trustees;

2. The action must be ratified at a meeting by the stockholders representing at least 2/3 of the OCS or
by at least 2/3 of the members in case of non-stock copro;

3. For purposes of such stockholders’/members’ meeting, written notice of the proposed action and the
time and place of the meeting shall be addressed to each stockholder or member at his/her/its place of
residence as shown in the books of the corporation and deposited to the addressee in the post office
with postage prepaid, or served personally, or sent electronically

4. A copy of the amended AOI shall be submitted to the SEC for its approval.

Appraisal right - in case of extension of corporate term, any dissenting stockholder may exercise the
appraisal right under the conditions provided in the RCCP.

- Sec. 80 - appraisal right is available even in the shortening of corporate term.

Dissolution - shortening may be designed to have an effect of dissolving the corpo under Sec. 136 of
the RCC.

- Takes effect on the date of approval of the amended AOI by the SEC.

- Three-year liquidation period - reckoned from the date the SEC approved the amended AOI.

- Upon expiration of the shortened term - corpo shall be deemed dissolved without any further
proceedings.
- dissolution shall automatically take effect on the day following the last day of the corporate term
stated in the AOI without the need for the issuance by the SEC of a certificate of dissolution.

C. INCREASE OR DECREASE OF CAPITAL STOCK

- involves the amendment of the AOI.

The capital stock may be increased by:

1. Increasing the number of shares and retaining the par value; OR

2. Increasing the par value of existing shares without changing the number of shares; OR
3. Increasing the number of shares and increasing the par value.

The capital stock may be decreased by:

1. Decreasing the number of shares and retaining the par value; OR

2. Decreasing the par value of existing shares without changing the number of shares; OR
3. Decreasing the number of shares and Decreasing the par value.

- consent of the contracting parties is required to give effect to such power of the corpo to decrease its
capital stock.

Stock split - a share is divided or converted into 2 or more shares but the amount of the OC remains the
same because the par value is also divided in as many shares.

Reverse stock split - opposite of stock split; it is pro-rata combination of all the outstanding shares of a
specified class into smaller number of shares of that class; may be required to increase the market value
per share or it may be designed to eliminate minority stockholders.

D. INCURRENCE, CREATION OR INCREASE OF BONDED INDEBTEDNESS

BONDED INDEBTEDNESS - secured indebtedness or indebtedness secured by real or personal

property that are covered by certificates. They refer to negotiable corporate bonds secure by mortgage
on property.

Non-stock - may incur, create or increase BI when approved by a majority of the Board of Trustees and
by at least 2/3 of the members in a meeting duly called for the purpose.

REQS:

1. Certificate of Creation of BI;

2. Audited financial statements as of the last fiscal year stamped received by the BIR and SEC;

3. Unaudited financial statements for the current year period, if item no. 2 is more than 6 months old
certified by the company accountant;

4. List of the company’s properties with their corresponding book, appraised of bondable values that
will be used to secure the projected bond issues certified by the company accountant;

5. Projected financial statements, certified by the company accountant showing the utilization of the
proceeds of the bonds and the redemption of the bond issues;

6. Trust indenture executed by the corporation and the trustee;

7. Sample form of the mortgaged bond cert to be issued;

8. Notarized secretary’s cert of no pending case of intra-corporate dispute; and

9. Compliance Monitoring Division clearance and/or clearance from other Department of the
Commission.