CORPO PP114 Flashcards
The powers of a corporation are categorized into three:
PP 114
1. General powers
2. Specific powers
3. Implied powers
General Powers of Corporation Example:
(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
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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 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 articles of incorporation.
Specific powers of Corporation Example:
- The power to extend or shorten corporate term
- Power to Increase or Decrease Capital stock; Incur, Create or increase Bonded Indebtedness
- Power to Deny Pre-emptive Right
- Power to Sell or Dispose Assets
- Power to acquire new own shares
Pre-emptive right
is the right of all stockholders to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings.
Doctrine of corporate opportunity
The Court held that under the doctrine of corporate opportunity, directors, officers, and controlling shareholders have the legal responsibility, “under the duty of loyalty, not to take such opportunities for themselves, without first disclosing the opportunity to the board of directors of the corporation and giving the board the option to decline the opportunity on behalf of the corporation. If the procedure is violated and a corporate fiduciary (is someone who manages money or property for someone else. When you’re named a fiduciary and accept the role, you must – by law – manage the person’s money and property for their benefit, not yours.) takes the corporate opportunity anyway, the fiduciary violates its duty of loyalty and the corporation will be entitled to a constructive trust of all profits obtained from the wrongful transaction.”
In the case of Chang, in order to establish whether he violated the doctrine of corporate opportunity and is thus obligated to refund the profits he derived from various business opportunities because of his position in TOPROS, the Court laid down the following elements to determine when a prohibited corporate opportunity exists, giving rise to a claim of damages:
The corporation is financially able to exploit the opportunity;
The opportunity is within the corporation’s line of business; ex. The Court added that in determining if the opportunity is within the corporation’s line of business, the involved corporations must be shown to be in competition with one another, such that they are both engaged in related areas of businesses, producing the same products with overlapping markets.
The corporation has an interest or expectancy in the opportunity; and
By taking the opportunity for his own, the corporate director, trustee, or officer will consequently be placed in a position inimicable to his duties to the corporation.
The Court ruled that the doctrine of corporate opportunity applied to Chang, and that his actions constituted acts of disloyalty in violation of the Corporation Code after it found that (1) Chang owned majority of the shares in TOPGOLD, Golden Exim, and Dentic; (2) TOPGOLD, Golden Exim, and Identic were in the same line of business as TOPROS; (3) TOPROS has existing service contracts with Linde, a client of Golden Exim; (4) Rental payments due TOPROS were instead paid to TOPGOLD; and (5) Chang bought the land where TOPROS’ building is located in the name of Golden Exim instead of TOPROS, justifying awarding Golden Exim the investment opportunity because “he had to make his own living.”
However, since further reception and evaluation of evidence is needed to determine the exact liability of Chang, the Court remanded the case to the RTC, concluding that “the claim for damages under Section 34 of the Corporation Code necessitates factual determinations which must be ultimately made by the RTC itself in the exercise of its judicial functions, embodied in a final judgment.”
The corporate opportunity doctrine, as delineated by Guth and its progeny, holds that a corporate officer or director may not take a business opportunity for his own if:
The corporate opportunity doctrine, as delineated by Guth and its progeny, holds that a corporate officer or director may not take a business opportunity for his own if: (1) the corporation is financially able to exploit the opportunity; (2) the opportunity is within the corporation’s line of business; (3) the corporation has an interest or expectancy in the opportunity; and (4) by taking the opportunity for his own, the corporate fiduciary will thereby be placed in a position inimicable to his duties to the corporation.
TOPROS v Chang
In the case of TOPROS v Chang, Chang was designated by TOPROS’ owners, Spouses Ramon and Yaona Ang Ty, to manage TOPROS. While TOPROS succeeded in becoming a multi-million enterprise, Spouses Ty eventually discovered that Chang, while being TOPROS director and officer, incorporated TOPGOLD Philippines, Inc., Golden Exim Trading and Commercial Corporation, and Identic International Corp. (Identic) to siphon assets, funds, goodwill, equipment, and resources of TOPROS. Chang also maliciously obtained opportunities belonging to TOPROS and instead awarded these to his own corporations, to the prejudice of TOPROS.
In applying the above-mentioned guidelines, the Supreme Court ruled that the Doctrine of Corporate Opportunity applied to Chang. According to the High Court, the following actions constituted acts of disloyalty in violation of the Corporation Code: (1) Chang owned the majority of the shares in TOPGOLD, Golden Exim, and Dentic; (2) TOPGOLD, Golden Exim, and Identic were in the same line of business as TOPROS; (3) TOPROS has existing service contracts with Linde, a client of Golden Exim; (4) Rental payments due TOPROS were instead paid to TOPGOLD; and (5) Chang bought the land where TOPROS’ building is located in the name of Golden Exim instead of TOPROS.
The Supreme Court even ruled that the even if Chang risked his own funds in running TOPROS and paying off its obligations, these do not absolve him of his duties as director and officer of TOPRO. Also, even if the Spouses Tys knew, tolerated, or even acquiesced to Chang’s establishment of TOPGOLD, Golden Exim, and Identic, such would not absolve a director from disloyalty. In fact, profits earned from the venture are held in constructive trust for the benefit of the corporation.
Indeed, as agents entrusted with the management of a corporation, directors and officers are expected to observe the utmost level of good faith.
Nell Doctrine
States the general rule that the transfer of all the assets of a corporation to another shall not render the latter liable to the liabilities of the transferor.
Nell Doctrine exceptions
- Where the purchaser expressly or impliedly agrees to assume such debts
- Merger
- Fraudulently to escape liabilities
- Continuation of the selling corporation
Under the doctrine of apparent authority
, if a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, it holds the agent 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.
