TITLE IV

POWERS OF CORPORATIONS Special Capacities

Fundamental principle a corporation is a
Sec. Corporate powers and capacity. juridical entity created by law
36 Every corporation incorporated o Possesses no power or authority other than
under this Code has the power and what is vested by law
capacity: Corporation is not like a natural person.
1. To sue and be sued in its Corporation Natural Person
corporate name; - Can only do that - Can do anything and
2. Of succession by its corporate which the law everything except
name for the period of time authorizes it to that which the law
stated in the articles of perform prohibits
incorporation and the - As a creature of law,
certificate incorporation; the power and
3. To adopt and use a corporate attributes of a
seal; corporation are
4. To amend its articles of those set out,
incorporation in accordance expressly or
with the provisions of this impliedly in the law.
Code;
5. To adopt by-laws, not contrary
to law, morals, or public policy,
and to amend or repeal the Kinds of Powers
same in accordance with this
Corporation may exercise
Code;
E express powers
6. In case of stock corporations, to
I implied powers
issue or sell stocks to
IN incidental powers
subscribers and to sell stocks
to subscribers and to sell
treasury stocks in accordance Express Implied Incidental
The powers Recognized under Powers that are
with the provisions of this expressly paragraph 11 of deemed
Code; and to admit members to provided by the Sec 36 conferred on the
the corporation if it be a non- o Corporation Code, o Corporations are corporation
stock corporation; o applicable special empowered to because they are
laws, exercise such incidental to the
7. To purchase, receive, take or o administrative other powers existence of the
grant, hold, convey, sell, lease, regulations, as may be corporation.
pledge, mortgage and and essential or Corps deemed
otherwise deal with such real o AOI necessary to given such power
Include: carry out its because they are
and personal property, purpose/s as the consequences
o General powers
including securities and bonds under Sec 36 stated in AOI. of the fact that
of other corporations, as the o Specific powers Include: they exist as
transaction of the lawful under Secs 11, o Reasonably juridical persons.
16, 37 to 44 necessary or Include:
business of the corporation may proper for the o Right to
Powers expressly
reasonably and necessarily provided for in execution of succession
require, subject to the Corp Code powers o Right to have a
limitations prescribed by law deemed part of expressly corporate
AOI even if not granted and name
and the Constitution; are not o Right to make by-
enumerated
8. To enter into merger or therein expressly or laws for its
consolidation with other impliedly government
corporations as provided in this included o Right to sue and
SEC opined that be sued
Code;
manufacturing is o Right to acquire
9. To make reasonable donations, not implied from and hold
including those for the public or incidental to properties for
welfare or for hospital, the business of the purposes
selling that is authorized by
charitable, cultural, scientific,
stated in the AOI. the charter
civic or similar purposes:
Provided, That no corporation,
domestic or foreign, shall give When Implied
donations in aid of any political Corporation only has the powers expressly
party or candidate or for granted in its charter or in the statues under
purposes of partisan political which it is created or such powers as are
activity; necessary for the purpose of carrying out its
10.To establish pension, express powers.
retirement and other plans for Only such powers as are reasonably necessary
the benefit of its directors, to enable corporations to carry out the express
trustees, officers and powers granted and the purposes of the
employees; and created are implied.
11.To exercise such other powers Powers merely convenient or useful are not
as may be essential or implied if not essential
necessary to carry out its o SC: If that act is one which is lawful in
purpose or purposes as stated itself, and not otherwise prohibited, is done
in the articles of incorporation. for the purpose of serving corporate ends
 and is reasonably tributary to the promotion
of those ends, in a substantial and not in a
remote and fanciful sense, it may fairly be
considered within charter powers. The test
to be applied is whether the act in
question is in direct and immediate
furtherance of the corporations
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 determining what businesses may be carried
on by a corporation, reference must be made
to its AOI and unless the power to carry a
particular business is either expressly or
impliedly conferred thereby, it does not exist.
o There should be a specification of the
corporations intended purpose with
sufficient clarity and elucidation in the AOI
in order to define with more certainty the
scope of its business.
Construction: language of the charter should
be 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.
General Rule: when the charter of a
corporation confers certain enumerated
powers, it is to be construed as including
powers reasonably necessary for the power
exercise of the enumerated powers and
excluding all other non-enumerated powers.
Stretching the Purpose Clause SEC adopted
the Stretching of Purpose Clauses Rule under
which it is legal to stretch the meaning of the
purpose clause to cover new and unexpected
situations.
o Situation and circumstances may arise
which could not have been foreseen at the
time of incorporation that can be
accommodated by the stretched
interpretation of the purpose clause.
Specific Powers
Provided for in the Corp Code including the
specific requirements and/or procedure for
their exercise.
Includes:
o Extend or shorten the corporate term under
Secs 11 and 37
o To amend the AOI under Sec 16
o To increase or decrease capital stock under
Sec 38
o To incur or create bonded indebtedness also
under Sec 38
o To deny pre-emptive right under Sec 39
o To sell or dispose all or substantially all of
the assets of the corporation under Sec 40
o To acquire its own shares under Sec 41
o To invest corporate funds in another
corporation, business or for any other
purpose under Sec 42
o To declare dividends under Sec 43
o To enter into a management contract under
Sec 44
General Powers
The board exercises general powers of the
corporation.
Approval of a resolution by the board is
enough for the exercise of such powers.
The exercise of general powers and all regular
business transactions is covered by the 2nd par
of Sec 25 of the Corp Code that provides that
every decision of at least a majority of the
directors or trustees present at a meeting at
which there is a quorum shall be valid as a
corporate act
Power to Sue and be Sued
o The power is granted to a duly organized
corporation, unless specifically revoked by
another law.
o The power to sue is exercised by the
corporation through the board and/or its
duly authorized officers and agents
o Corporations are required to attach a copy
of the Board Resolution authorizing the
filing of the complaint or petition.
Corporations act only through their officers
and duly authorized agents. Only
specifically authorized individuals may
perform physical actions, like the signing
and the delivery of documents in behalf of
the corporate entity. What is important is
that there is a board resolution giving such
authority.
o If no power of attorney, secretarys
certificate or board resolution is attached to
the petition or complaint, the pleading is
not properly verified and should be treated
as an unsigned pleading. only after a
resolution has been provided that the
actions will be binding on the corporation.
o Authority may be impliedly given by the
Board. SC relaxed the rule by ruling that in
exceptional cases, certain officers have
implied authority to sign the certification
against non-forum shopping. In those
exceptional cases, SC dispensed the
requirement of submission of Board
resolution.
Power of Succession
o Sec 36 is explicit that the powers of
succession of a corp by its corporate name is
only for the period of time stated in APO and
Certificate of Incorporation.
o Without proper extension of the term, right of
the corporation to exist continues only up to
the end of the term.
Power to adopt and use a corporate seal
o The power can be traced in ancient common
law where all actions of the corporation were
required to be under seal.
o A seal is not indispensable for the
transactions or contracts of the corporation
o A document may be considered valid and
binding even in the absence of a seal.
o One instance when a seal is necessary is with
respect to the certificate of stock as provided
under Sec 63
Power to Amend AOI
o Sec 36 provides that the power to amend the
AOI must be in accordance with the
provisions of the Corp Code.
 o Provisions averted to are those under Sec 16
Power to Adopt By-laws
o Implicit from Sec 36 that a corporation may
exist even without by-laws.
o The existence of the power of the corporation
to adopt by-laws does not ordinarily and of
necessity makes the exercise of such power
essential to its corporate life or to the validity
of its acts.
o By-laws are meant to regulate the manner of
conducting the internal affairs of the
corporation
Corp Code expressly provides that the
power to adopt, amend or repeal is subject
to the condition that the By-laws must not
be contrary to law, morals or public policy.
Powers regarding shares and
membership
o Subscribers and not the stock corporation are
the owners of the shares therein.
o The corporation has certain powers relating
to shares including:
Power to issue previously unsubscribed
shares
Power to sell treasury stocks
Power to sell delinquent shares
Power to acquire its own shares in proper
cases
Power to redeem redeemable shares
Power to increase or decrease the par
value of shares
To resort to stock split
o A non-stock corporation has the power to
admit members to the corporation. The
corporation may prescribe the qualifications
of members and may provide for grounds for
their disqualification.
To acquire, sell, lease or otherwise deal
with real or personal property
o A corporation has the power 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 the
limitations prescribed by law, and the
Constitution.
Power to sell, acquire, lease or otherwise
convey real or personal property is vested
in the BOD. May appoint agents, the final
say will have to be with the Board, whose
approval will finalize the transaction.
- If there is an agent, there must be a
written SPA and Board Resolution which
must expressly confer power to sell the
specified parcel of land.
Board can exercise this power under this
provision without concurrence of the
stockholders. Stockholders approval is
necessary only in cases covered by Secs
40 and 42.
Two basic requirements in order that a
corporation can deal with real or personal
property, which require:
- It must be reasonably and necessarily
required by the transaction of the lawful
business of the corporation
- It is subject to limitations prescribed by
law and the Constitution
Even in cases that are not covered by Secs
40 and 42, the By-laws of the corporation
may expressly require the approval of the
stockholders for the sale of the corporation
property.
- In the absence of any provision in the
By-laws as to the number of votes
required, the vote of stockholders
representing the majority of the
outstanding capital stock is sufficient to
approve the sale.
Temporary lease of corporate property is
allowed even if a corporation is not
engaged in the business of leasing
properties. SEC imposed the ff
requirements for temporary lease:
- Property is not presently used by the
corporation and leasing of the property
is not made on a regular basis
- Leasing the property will make it
productive instead of allowing them to
remain idle
- There is no express restrictions in the
AOI and By-laws
- Leasing the property is not used as a
scheme to prejudice corporate creditors
or result in the infringement of the trust
fund doctrine.
Corporation can acquire usufruct over an
immovable property. However, Art 605 of
NCC provides that usufruct cannot be
constituted in favor of a corporation for
more than 50 years.
- If usufruct has been constituted in favor
of a corporation and the corporation is
dissolved before the expiration of the
period of usufruct, the usufruct shall be
extinguished by reason thereof.
- A usufruct is meant only as a lifetime
grant
- A corporations lifetime may be
extended, the usufruct may also be
extended.
To enter into merger or consolidation
o Merger occurs when 2 or more corporations
merge into a single corporation that shall be
one of the constituent corporations.
o There is consolidation when 2 or more
corporations form a new single corporation.
o Rules on merger and consolidation are
provided for in Secs 76 to 80 of Corp Code
To make reasonable donations
o Without an express grant of power, a stock
corporation is generally not allowed to
donate portions of its assets.
o Consistent with CSR Theory, Corp Code now
allows corporations to make donation so
long as the ff are complied with:
Donation must be reasonable
Donation must be for valid purposes
including public welfare or for hospital,
charitable, cultural, scientific, civic, or
similar purposes
 The donation must not be in aid of any
political party or candidate or for
purposes of partisan political activity
o SEC observed that the donation must bear
reasonable relation to the corporations
interest and not be so remote and fanciful
o Under old Corp Law, SC ruled that even if a
corporation cannot contribute to charity or
benevolence, it is not forbidden from
recognizing moral obligations of which strict
law takes no cognizance. A corporation is
not prohibited from establishing a
reputation for broad, liberal, equitable
dealing which may stand them in good
stead in competition with less fair rivals.
o A corporation is likewise empowered to
accept donations when it is necessary to
carry out its express powers.
o Donation is prohibited if it is made within
the context of a partisan political activity
Donation is prohibited whether or not the
conveyance is covered by a formal deed of
donation.
To establish pension, retirement, and
other plans
o Sec 36(10) provides that a corporation has
the power to establish pension, retirement,
and other plans for the benefit of its
directors, trustees, officers and employees
is covered by such provision.
o Stockholders approval is not necessary.
Retirement fund established by the
corporation may gain tax exempt status
under the NIRC
There is no similar provision under the
old Corporation Law that authorizes a
corporation to establish a pension,
retirement and other plans
- Maria Carla Pirovano et al v De la
Rama Steamship SC explained that
the weight of authority is that it is
within the powers of a stock
corporation to grant a gratuity to an
employee.
- A gratuity is a bounty or gift given in
return for a favor or services. Court
ruled that a gratuity may be in the
form of a remunerative donation.
Other Powers
Sec 36 provides that the corporation is
empowered to exercise such other powers as
may be essential or necessary to carry out its
purpose/s as stated in the AOI.
Corporation has the power to hire employees,
engage the services of contractors, open bank
accounts, and other matters that are
necessary for its operations.
To enter into Partnership
o Corporation cannot enter into a contract of
partnership. A corporation cannot become a
member of a partnership in the absence of
express authorization by statute or charter.
o This limitation is based on public policy
since in a partnership, the corporation
would be bound by the acts of the persons
who are not its duly appointed and
authorized agents and officers which would
be entirely inconsistent with the policy of
the law that the corporation shall manage
its own affairs separately and exclusively.
o Mendiola v CA prohibition is justified by
the following:
The mutual agency between the
partners would be inconsistent with the
policy of the law that the corporation
shall manage its own affairs separately
and exclusively
That such an engagement would
improperly allow corporation property
to become subject to risks not
contemplated by the stockholders when
they originally invested in the
corporation.
SEC allows a corporation to be a
partner if the FF conditions are present:
- the authority to enter into a
partnership relation is expressly
conferred by the charter or AOI of
the corporation, and the nature of
the business venture to be
undertaken by the partnership is in
line with the business authorized by
the charter or AOI of the corporation
involved.
- The partnership must be a limited
partnership and corporation must be
a limited partner
- If it is a foreign corporation, it must
obtain a license to transact business
in the country
SEC later abandoned this option and
now allows corporations only to be
limited partners. It was explained that
by entering into a limited partnership, a
corporation would continue to manage
its own corporate affairs while validly
abstaining from participation in the
management of the entity in which it
has invested.
To enter into a JV
o Corporation can enter into a JV agreement. JV
is an organization formed for some temporary
purpose.
o Under PH law, a JV is a form of partnership
and should thus be governed by law of
partnerships.
To Borrow Funds
o To power to borrow money is auxiliary to the
primary purposes of the corporation.
o A board resolution is necessary for such
purpose because an SPA is necessary to
confer such power under Art 1878 of the
NCC.
It is only duly authorized representatives
that must secure loans in behalf of the
corporation. If the loan is the personal
debt of the corporate officer, the
corporation is under no obligation to pay
the loan.
To Act as Surety or Guarantor
o General Rule: a corporation may not
ordinarily be bound by a contract of
guarantee or surety for the benefit of third
persons.
o In the absence of an express power in the
AOI, the power to act as surety or guarantor
 cannot be justified under Secs 2, 36, and 45
of the Corp Code.
o Guaranty may be given in the
accomplishment of any object for which the
corporation was created, or when the
particular transaction is reasonably
necessary or proper in the conduct of its
business.
Corporation cannot act as an
accommodation party in a negotiable
instrument. The corporation shall not be
bound by a signature that will make it an
accommodation maker, drawer or
indorser of the instrument. Issue or
indorsement of a negotiable instrument
without consideration and for the
accommodation of another is ultra vires.
To Mortgage
o The conferment of power to borrow money
for corporate purposes likewise includes the
conferment of power to mortgage the
properties of the corporation to secure its
obligations.
o 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 corporation may
reasonable and necessarily require.
o Corporation cannot mortgage its properties
to secure the obligation of third persons, it
has been recognized that the corporation can
mortgage its properties to secure the
obligation of a subsidiary.
o SEC opined that the corporation can
mortgage its properties for the obligations of
another corporation which is not subsidiary
provided the ff requirements are present:
There is no express restriction in the AOI
and By-laws
The purpose of the mortgage is not illegal
Consent of all corporate creditors and
stockholders must be secured
Transaction is not used as a scheme to
defraud or prejudice corporate creditors or
result in infringement of the Trust Fund
Doctrine
The mortgage will not hamper the
continuous business operation of the
corporation
Accommodated third party involved in the
mortgage is financially solvent and
capable of paying its obligation
Practice of Profession
o A view was expressed in one case that the
corporate practice of any profession must
never be sanctioned.
o Public policy behind such ruling is universal
and is based on the notion that ethics of any
profession is based upon individual
responsibility, personal accountability and
independence, which are all lost where one
verily acts as a mere agent, or alter ego of
unlicensed persons or corporations.
o Exceptionally, architects can organize a
corporation for the practice of their
profession. Sec 37 of RA 9266 provides the
conditions:
Only Filipino citizens properly registered
and licensed as architects under this act
may form and obtain registration as a firm,
company, partnership, association or
corporation for the practice of architecture
Registered and licensed architects shall
compose at least 75% of the owners,
shareholders, members incorporators,
directors, executive officers,
Individual members of such firm,
partnership association or corporation
shall be responsible for their individual and
collective acts as an entity and as
provided by law
Such firm, partnership, association, or
corporation shall be registered with the
SEC and Board