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ULTRA VIRES DOCTRINE

1. What is Ultra Vires Doctrine?


A: No corporation under this Code shall possess or exercise any corporate powers except
those conferred by this Code or by its articles of incorporation and except such as are
necessary or incidental to the exercise of the powers so conferred.
Acts beyond the corporation’s powers are called ultra vires acts
An issue of stock by a corporation in excess of the amount prescribed or limited by its AOI
is ultra vires and the stock so issued is void even in the hands of a bona fide purchaser
for value
The concept also includes those acts that may ostensibly be within such powers but are,
by general or special laws, either proscribed or declared illegal
2. What are the types of Ultra Vires Acts?
A: The following are the different types of UVA
1.) Acts done beyond the powers of the corporation (through BOD)
2.) Ultra vires acts by corporate officers
3.) Acts or contracts which are per se illegal as being contrary to law.
3. What are the Instances when the act of the officers binds the corporation?
A:
1. If it is provided in the by-laws
2. If authorized by the board
3. Under the doctrine of apparent authority
4. When the act was ratified
4. AAA Corporation issued 4 PDCs to BBB Corporation through its treasurer. The check is
a crossed check which is only payable to BBB. However, BBB indorsed it to CCC
corporation. CCC asked BBB to produce a certification coming from AAA that the checks
are validly issued and can be deposited by CCC corporation. The Treasurer confirmed that
the checks can be rediscounted by CCC corporation despite it being crossed check. Upon
depositing the check, it was dishonored due to AAA stopped payment. CCC sued AAA and
BBB and the treasurer and a decision of the trial court was rendered in favor of CCC. On
Appeal, AAA argues that the signing of the check is an ultra vires act hence, the treasure
should be held personally liable. The treasurer contended that the checks were authorized
by the corporation.
Is the act ultra vires act?
Should the treasurer be held personally liable?
A: No, the act is not an ultra vires act because it has been held that issuing a check is
within the ambit of authority of the treasurer of a corporation unless provided in its Article
of Incorporation or in its by-laws .
Yes, the treasurer should be held personally liable to CCC because he was negligient in
providing a confirmation to the effect that the checks, despite being crossed, can be
negotiated to CCC. Atrium Management Corporation vs. Court of Appeals
5. What is the effect of Ultra Vires Act?
A: Ultra vires acts entered into by the board of directors binds the corporation and the
courts will not interfere unless terms are oppressive and unconscionable (Gamboa vs.
Victoriano, G.R. No. L-43324. May 5, 1979).
6. What are the remedies available in case of ultra vires act?
A:
1. State
a. Obtain a judgment of forfeiture; or
b. The SEC may suspend or revoke the certificate of registration
2. Stockholders
a. Injunction; or
b. Derivative suit
3. Creditors - Nullification of contract in fraud of creditors.
DOCTRINE OF RATIFICATION
7. Pedro, President of AAA corporation obtained a loan from Juan. AAA corporation
received the proceeds of the loan and used it for business purposes not knowing that it
came from the loan of Pedro from Juan. Pedro failed to pay the loan. Juan sued Pedro and
AAA corporation. AAA corporation argued that it was not aware of the said loan and that
Pedro was not authorized to obtain a loan on behalf of AAA corporation. Juan argue that
AAA corporation ratified the act of Pedro when it received the proceeds of the loan. Decide.
A: I will decide in favor of AAA corporation. The President, without the SPA cannot be
allowed to obtain loan on behalf of the corporation. Also, the corporation, despite receiving
the proceeds of the loan, cannot be deemed to have ratified the act of Pedro because it
does not have knowledge of Pedro's acts hence there is no act to be ratified so to speak
of. The case does not show that AAA corporation acted in bad faith. (Yasuma vs. Heirs of
de Villa)
8. Can a corporation ratify an unauthorized act of its corporate officer?
A: The corporation may ratify—expressly or impliedly—the unauthorized acts of its
corporate officers.
9. Define ratification?
A: Ratification means that the principal voluntarily adopts, confirms and gives sanction to
some unauthorized act of its agent on its behalf.

Doctrine of Estoppel
10. Discuss the doctrine of estoppel.
A:It is a familiar doctrine that if a corporation knowingly permits one of its officers or any
other agent to act within the scope of an apparent authority, it holds him out to the public
as possessing the power to do those acts; thus, the corporation will, as against anyone
who has in good faith dealt with it through such agent, be estopped from denying the
agent’s authority.

Doctrine of Apparent Authority


11. How does the existence of the Apparent Authority be ascertained?
A: Apparent authority is derived not merely from practice. Its existence may be
ascertained through
(1) the general manner in which the corporation holds out an officer or agent as
having the power to act or, in other words, the apparent authority to act in general,
with which it clothes him; or
(2) the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, whether within or beyond the scope of his ordinary powers.

12. Pedro Cruz, president of AAA Corporation, obtained a loan worth 1M from 123
Bank. However, the loan was not paid and thus 123 Bank was promted to file a suit
against Pedro Cruz and AAA Corporation. Pedro Cruz, asked the bank that he will
pay 300K initially and that the others are payable thru installment with the penalties
and interest. 123 Bank agreed thru its letter sent and signed by its President Juan
Santos. Payment was given for the 3 months installment plus the 300K initial
payment. After 3 Months, 123 Bank demanded Pedro to pay the whole amount.
Pedro argued that there was a compromise agreement but the bank said it had no
knowledge of the said agreement and that it did not gave Juan Santos, its
President, authority regarding the matter. DECIDE.
A: I will decide in favor of Pedro Cruz because 123 Bank is estopped from denying
the authority of Pedro under the doctrine of apparent authority and that the bank
has actually ratified the act Juan when it received and was benefited from the
proceeds of the payment from the first 2 months. Furthermore, it has been held
that the notice to the corporate officer is a notice to the corporation and thus the
latter cannot deny its knowledge of the said acts. Francisco Vs GSIS.
13. Are corporate policies need to be in writing?
A: No, Corporate policies need not to be in writing.
14. Can those persons who belong to upper corporate echelons presume the
existence of its benefits and priveleges?
A: No.
Doctrine of Laches or “Stale Demands”
15. Define doctrine of laches or "stale demands"
A: The principle of laches or “stale demands” provides that the failure or neglect, for
an unreasonable and unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier, or the negligence or omission to
assert a right within a reasonable time, warrants a presumption that the party entitled
to assert it either has abandoned it or declined to assert it

Power to Extend or Shorten Corporate Term (Sec. 37)


16. May a corporation extend its life by amendment of its articles of
incorporation effected during the three-year statutory period for liquidation
when its original term of existence had already expired?
A: A corporation cannot extend its life by amendment of its articles of
incorporation effected during the three-year statutory period for liquidation when its
original term of existence had already expired.
17. When a corporation can apply for the extension of its term?
A: extension must be made within 5 years before the expiry date of the corporate
term, unless there are justifiable reasons for an earlier extension as may be
determined by the SEC.
18. What is the remedy of the corporation if it advertently did not file for
extension and the term has expired?
A: The remedy of the stockholders is reincorporation. Any dissenting
stockholder may exercise his appraisal right in case of shortening or extending
corporate term.
19. The Securities and Exchange Commission approved the amendment of the
articles of incorporation of GHQ Corporation shortening its corporate life to
only 25 years in accordance with Sec. 120 of the Corporation Code. As
shortened, the corporation continued its business operations until May 30,
1997, the last day of its corporate existence. Prior to said date, there were a
number of pending civil actions, of varying nature but mostly money claims filed
by creditors, none of which was expected to be completed or resolved within
five years from May 30, 1997. If the creditors had sought your professional help
at that time about whether or not their cases could be pursued beyond May 30,
1997, what would have been your advice? (2000 Bar Question)
A: The cases can be pursued even beyond May 30, 1997, the last day of the
corporate existence of GHQ Corporation. The corporation is not actually
dissolved upon the expiration of its corporate term. There is still the period for
liquidation or winding up.
20. XYZ Corporation entered into a contract of lease with ABC, Inc., over a piece
of real estate for a term of 20 years, renewable for another 20 years, provided
that XYZ's corporate term is extended in accordance with law. Four years after
the term of XYZ Corporation expired, but still within the period allowed by the
lease contract for the extension of the lease period, XYZ Corp. notified ABC,
Inc., that it is exercising the option to extend the lease. ABC, Inc., objected to
the proposed extension, arguing that since the corporate life of XYZ Corp. had
expired, it could no longer opt to renew the lease. XYZ Corp. countered that
withstanding the lapse of its corporate term it still has the right to renew the
lease because no quo warranto proceedings for involuntary dissolution of XYZ
Corp. has been instituted by the Office of the Solicitor General. Is the contention
of XYZ Corp. meritorious? Explain briefly (2004 Bar Question).
A: No, XYZ Corporation’s contention is not meritorious XYZ Corp. was
dissolved ipso facto upon the expiration of its original term. It ceased to be a
body corporate for the purpose of continuing the business for which it was
organized, except only for purposes connected with its winding up or
liquidation. Extending the lease is not an act to wind up or litigate XYZ’s affairs.
It is contrary to the idea of winding up the affairs of the corporation (PNB v. CFI
of Rizal, May 27, 1992)
Power to Increase or Decrease Capital Stock; Incur, Create or Increase Bonde
Indebtedness (Sec. 38)
21. Is SEC approval required before a corporation be able to increase or
decrease its capital stock?
A: YES.
22. Is the Treasurer's affidavit required if the Corporation wants to decrease its
capital stock?
A: Treasurer’s affidavit is required in increasing capital stock, NOT in
decreasing capital stock
23. Is a stockholder's approval required in all borrowings of the Corporation?
A: No, only those that are bonded indebtedness.
Disposition of All or Substantially All Corporate Assets (Sec. 40)
24. What are the requirements when a corporation disposes all or substantially all
corporate assets?
A: (1) When authorized by the vote of the stockholders representing at least two-
thirds (2/3) of the outstanding capital stock, or in case of non-stock corporation, by
the vote of at least to two-thirds (2/3) of the members,
(2) in a stockholder’s or member’s meeting duly called for the purpose.
(3) Written notice of the proposed action and of the time and place of the
meeting shall be addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally: