Corpo (Paper 5)

Simeon, Kamille Emmanuelle (3G)
Student No: L-150511

Corporation Law - Atty. Solomon Hermosura
ULTRA VIRES ACTS OF CORPORATIONS
Under the Corporation Code, a corporation, being an artificial being, has powers
expressly authorized by the law and all those incidental thereto. In some cases, the
implied powers are also acknowledged as a valid source of power of a corporation.
Hence, a corporation validly created under or by law has three powers, to wit: 1.)
Express, 2.) Implied and 3.) Incidental.
Express powers are those which are explicitly provided by the Corporation Code.
These powers are those which are expressly provided or mentioned by the law,
articles of incorporation or by-laws. Some of these powers are those mentioned
under Section 36 of the Corporation Code. Section 36 provides:
Sec. 36. Corporate powers and capacity. - Every corporation incorporated under this
Code has the power and capacity:
1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this
Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or
repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell
stocks to subscribers and to sell treasury stocks in accordance with the provisions of
this Code; and to admit members to the corporation if it be a non-stock corporation;
7. 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;
8. To enter into merger or consolidation with other corporations as provided in this
Code;
9. To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no
corporation, domestic or foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors,
trustees, officers and employees; and
11. 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.
Sec. 37. Power to extend or shorten corporate term. - A private corporation may

extend or shorten its term as stated in the articles of incorporation when approved by
a majority vote of the board of directors or trustees and ratified at a meeting by the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or
by at least two-thirds (2/3) of the members in case of non-stock corporations. Written
notice of the proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as shown on the
books of the corporation and deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That in case of extension of
corporate term, any dissenting stockholder may exercise his appraisal right under the
conditions provided in this code. (n)
Sec. 38. Power to increase or decrease capital stock; incur, create or increase

bonded indebtedness. - No corporation shall increase or decrease its capital stock or
incur, create or increase any bonded indebtedness unless approved by a majority
vote of the board of directors and, at a stockholder's meeting duly called for the
purpose, two-thirds (2/3) of the outstanding capital stock shall favor the increase or
diminution of the capital stock, or the incurring, creating or increasing of any bonded
indebtedness. Written notice of the proposed increase or diminution of the capital
stock or of the incurring, creating, or increasing of any bonded indebtedness and of
the time and place of the stockholder's meeting at which the proposed increase or
diminution of the capital stock or the incurring or increasing of any bonded
indebtedness is to be considered, must be addressed to each stockholder at his
place of residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally.
Xxx
On the other hand, incidental and implied powers are those which can be derived
from the express powers of the corporation because they are necessary powers to
be able to fully exercise the express powers conferred to it by law, articles of
incorporation or by-laws.
If a corporation performs or does an act which is neither classified as express,

incidental nor implied, any act performed would be considered as an ultra vires act or
those act which are beyond the powers of the corporation. Section 45 of the
Corporation Code governs the so called ultra vires act.
Sec. 45. Ultra vires acts of corporations. - No corporation under this Code shall
possess or exercise any corporate powers except those conferred by this Code or by
its articles of incorporation and except such as are necessary or incidental to the
exercise of the powers so conferred. (n)
In the case of Republic vs Acoje Mining Corporation (G.R. No. L-18062, February 28,
1963), an ultra vires act is defined as one committed outside the object for which a
corporation is created defined by the law of its organization and therefore beyond the
powers conferred to it. It does not, however, necessarily follows that all express
powers under the law, by-laws or articles of incorporation may not amount to an ultra
vires act. Jurisprudence provides that when a law is declared illegal and a
corporation performs an act based on it, the act is still considered as an ultra vires
act. In addition, in the case of Acebedo Optical Company, Inc. v. Court of Appeals
(G.R. No. 100152, March 31, 2000), the Supreme Court held that, in defining an ultra
vires, an ultra vires act is not similar to illegal act. An ultra vires act may be legal but
void because the said act is not prohibited by law, or is not punishable but is not
allowed or granted by law. On the other hand, an illegal act is one which is expressly
santioned or prohibited by the law.
Effects of Ultra Vires Acts
Generally, the following are the consequences of ultra vires acts:

The corporation may be dissolved under a quo warrranto proceeding.

The Certificate of Registration may be suspended or revoked by the SEC.

Parties to the ultra vires contract will be left as they are, if the contract has been fully
executed on both sides. Neither party can ask for specific performance, if the
contract is executory on both sides. The contract, provided that it is not illegal, will be
enforced, where one party has performed his part, and the other has not with the
latter having benefited from the former’s performance.
Any stockholder may bring an individual or derivative suit to enjoin a threatened ultra
vires act or contract. If the act or contract has already been performed, a derivative
suit for damages against the directors maybe filed, but their liability will depend on
whether they acted in good faith and with reasonable diligence in entering into the
contracts. When the suit against the injured party who had no knowledge that the
corporation was engaging in an act not included expressly or impliedly in its purposes
clause.
Ultra vires acts may become binding by the ratification of all the stockholders, unless
third parties are prejudiced thereby, or unless the acts are illegal.
The state attorney general may assert the doctrine in a proceeding to dissolve the
corporation or to enjoin it from transacting unauthorized business.
In sum, the effects of ultra vires acts corporation can be summarized as follows:
A corporation that is engaged in or has performed an ultra vires businesss is liable

for torts committed by its agents within their authority in the course of that business. If
a 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 has exceeded its authority in taking or holding
the property.
When the contract is fully executed on both sides, the contract is effective and will
stand as a foundation of rights acquired under it. When both contracts are wholly
executoryon 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 an act. When both contracts are wholly ececutoryon both sides, neither party can
maintain an action. The rule is justified only 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.
It is believed that an ultra vires act of a corporation cannot be ratified. However, an

altra vires act which amount to an estoppel for both partially and wholly on both
parties. Thus, without saying that the contacts were ratified, the parties ca be
estopped from citing the ultra vires natures of acts.
Neverthless, In essence, ultra vires retains force in three circumstances:
1. Shareholders may bring suits against the corporation to enjoin it from acting
beyond its powers.
2. The corporation itself, through receivers, trustees, or shareholders, may sue
incumbent or former officers or directors for causing the corporation to act
ultra vires.
In the recent case of Universidad of Mindanao vs Banko Sentral (G.R. No. 194964-
65, January 11, 2016), the Supreme Court held that personal liabilities may be
incurred by directors who assented to such unauthorized act and by the person who
contracted in excess of the limits of his or her authority without the corporation’s
knowledge. Unauthorized acts that are merely beyond the powers of the corporation
under its articles of incorporation are not void ab initio.
In the case of Gamboa vs Victoriano (G.R. No. L-40620, May 5, 1979), the Supreme
Court held that 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.
In Pirovano, et al. vs CIR (G.R. No. L-19865, July 31, 1965), the Supreme Court
explained that corporate acts may be ultra vires but not void. Corporate acts may be
capable of ratification:
A distinction should be made between corporate acts or contracts which are illegal
and those which are merely ultra vires. The former contemplates the doing of an act
which is contrary to law, morals, or public order, or contravene some rules of public
policy or public duty, and are, like similar transactions between individuals, void.
They cannot serve as basis of a court action, nor acquire validity by performance,
ratification, or estoppel. Mere ultra vires acts, on the other hand, or those which are
not illegal and void ab initio, but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and enforceable when
ratified by the stockholders.
In the case of Gamboa vs Victoriano (G.R. No. L-40620, May 5, 1979), the Supreme
Court held that 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.

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Simeon, Kamille Emmanuelle (3G)

Student No: L-150511

ULTRA VIRES ACTS OF CORPORATIONS

1. To sue and be sued in its corporate name;

Sec. 37. Power to extend or shorten corporate term. - A private corporation may

Sec. 38. Power to increase or decrease capital stock; incur, create or increase

If a corporation performs or does an act which is neither classified as express,

Effects of Ultra Vires Acts

Generally, the following are the consequences of ultra vires acts:

A corporation that is engaged in or has performed an ultra vires businesss is liable

It is believed that an ultra vires act of a corporation cannot be ratified. However, an

Neverthless, In essence, ultra vires retains force in three circumstances:

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