Doctrine of Separate Legal Personality

Powers of a Corporation

Republic vs. Acoje Mining Company Inc. 7 SCRA 661

Acoje Mining requested the Director of Posts for a post office in their mining camp in which it agreed in a resolution to be directly responsible for the negligence and dishonesty of the employee it assigns. Sanchez, Acojes employee was designated as the postmaster who disappeared with post office funds. Acoje denied liability contending that the resolution was ultra vires for the Board of Directors had no authority to act on the matter.

Issue : W/N Acoje is liable under the terms of the resolution?

Held :

The claim that the resolution adopted by the board of directors of appellant company is an ultra vires act cannot also be entertained it appearing that the same covers a subject which concerns the benefit, convenience and welfare of its employees and their families. While as a rule an ultra 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 (19 C.J.S., Section 965, p. 419), there are however certain corporate acts that may be performed outside of the scope of the powers expressly conferred if they are necessary to promote the interest or welfare of the corporation. Thus, it has been held that "although not expressly authorized to do so a corporation may become a surety where the particular transaction is reasonably necessary or proper to the conduct of its business,"1 and here it is undisputed that the establishment of the local post office is a reasonable and proper adjunct to the conduct of the business of appellant company. Indeed, such post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality. Even assuming arguendo that the resolution in question constitutes an ultra vires act, the same however is not void for it was approved not in contravention of law, customs, public order or public policy. The term ultra vires should be distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated.2 It being merely voidable, an ultra vires act can be enforced or validated if there are equitable grounds for taking such action. Here it is fair that the resolution be upheld at least on the ground of estoppel.

National Power Corporation vs. Vera 170 SCRA 721

NAPOCOR was empowered not only to construct, operate and maintain power plants, reservoirs, transmission lines and other works but also to exercise such powers and do such things as may be reasonably necessary to carry out the business and purposes for which it was organized or which from time to time may be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish said purpose. It has a contract with Sea Lion International Port Terminal Services Inc. for stevedoring services in its pier and when the contract expired, NAPOCOR did not renew but took over the services instead. Sea Lion filed a complaint and the lower court issued and order enjoining petitioner from further undertaking stevedoring services in its pier and directed it to enter into a contract for stevedoring and arrastre services or to conduct a public bidding .

Issue : W/N NAPOCOR may undertake stevedoring services?

Held:

This Court is, guided by jurisprudence in the application of the above standard. In the 1963 case of Republic of the Philippines v. Acoje Mining Company, Inc. [G.R. No. L-18062, February 28, 1963, 7 SCRA 3611 the Court affirmed the rule that a corporation is not restricted to the exercise of powers expressly conferred upon it by its charter, but has the power to do what is reasonably necessary or proper to promote the interest or welfare of the corporation. Thus, the Court, finding that a "post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality" [Id., at P. 365], held that respondent mining corporation was empowered to operate and maintain postal facilities servicing its employees and their families at its mining camp in Sta. Cruz, Zambales despite absence of a provision in the company's charter authorizing the former to do so.

The Court in the case of Teresa Electric & Power Co., Inc. v. Public Service Commission and Filipinos Cement Corporation [G.R. No. L-21804, September 25, 1967, 21 SCRA 198] in interpreting a provision found in respondent corporations articles of incorporation authorizing the corporation to perform any and all acts connected with the business of manufacturing portland cement or arising therefrom or incidental thereto, concluded that the corporation must be deemed authorized to operate and maintain an electric power plant exclusively for its own use in connection with the operation of its cement factory in a remote barrio. The Court found that the operation of such plant was necessarily connected with the business of manufacturing cement.

In the instant case, it is an undisputed fact that the pier located at Calaca, Batangas, which is owned by NPC, receives the various shipments of coal which is used exclusively to fuel the Batangas Coal-Fired Thermal Power Plant of the NPC for the generation of electric power. The stevedoring services which involve the unloading of the coal shipments into the NPC pier for its eventual conveyance to the power plant are incidental and indispensable to the operation of the plant The Court holds that NPC is empowered under its Charter to undertake such services, it being reasonably necessary to the operation and maintenance of the power plant.

Pena vs. CA 193 SCRA 717

PBC mortgaged land to DBP which was eventually foreclosed. Petitioner was the highest bidder. Thereafter, a special meeting was held by Pampanga wherein 3 out of 5 Board of directors attended. They signed a resolution assigning their right to redeem the property to Atty. Briones. He redeemed the property and transferred it to Enriquez who sold it to Yap. A stipulation in the by laws states that at least four members must be present to form a quorum. Such was invoked by petitioner alleging that the assignment is not valid.

Issue : W/N the assignment is valid?

Held :

Three out of five directors present in a special meeting do not constitute a quorum when the by-laws requires at least four members to constitute a quorum. The Corporation Code provides that the AOI or by-laws may fix a greater number than the majority of the number of directors to constitute a quorum. Any number less than the number provided in the articles or by-laws cannot constitute a quorum; any act therein would not bind the corporation; all that the attending directors could do is to adjourn.

Lopez Realty vs. Fontecha 247 SCRA 183

Petitioner approved two resolutions for gratuity pay of its employees. Gonzales, one of the majority stockholders was out of the country and was not duly notified but allegedly sent a cablegram to the corporation objecting to certain matters and upon her return she filed a derivative suit with the SEC. Lopez Realty still paid the first two instalments of the gratuity pay and Gonzales signature was affixed on the cash vouchers but the vouchers for the third instalment were cancelled by Gonzales. The employees demanded for the gratuity pay. Petitioner and Gonzales contend that the board resolution providing for gratuity pay was ultra vires for lack of notification to Gonzales and for lack of ratification by the stockholders of the corporation.

Issue : W/N the board resolution was ultra vires?

Held :

Despite the alleged lack of notice to petitioner Asuncion Lopez Gonzales at that time the assailed resolutions were passed, we can glean from the records that she was aware of the corporation's obligation under the said resolutions. More importantly, she acquiesced thereto. As pointed out by private respondents, petitioner Asuncion Lopez Gonzales affixed her signature on Cash Voucher Nos. 81-10-510 and 81-10-506, both dated October 15, 1981, evidencing the 2nd installment of the gratuity pay of private respondents Mila Refuerzo and Florentina Fontecha.

We hold, therefore, that the conduct of petitioners after the passage of resolutions had estopped them from assailing the validity of said board resolutions. Assuming, arguendo, that there was no notice given to Asuncion Lopez Gonzalez during the special meetings held it is erroneous to state that the resolutions passed by the board during the said meetings were ultra vires. In legal parlance, "ultra vires" act refers to one which is not within the corporate powers conferred by the Corporation Code or articles of incorporation or not necessary or incidental in the exercise of the powers so conferred. Petitioners try to convince us that the subject resolutions had no force and effect in view of the non-approval thereof during the Annual Stockholders' Meeting. To strengthen their position, petitioners cite section 28 1/2 of the Corporation Law (Section 40 of the Corporation Code). We are not persuaded.

The cited provision is not applicable to the case at bench as it refers to the sale, lease, exchange or disposition of all or substantially all of the corporation's assets, including its goodwill. In such a case, the action taken by the board of directors requires the authorization of the stockholders on record.

Laureano Investment and Development Corporation vs. Court of Appeals 272 SCRA 253

Petitioner entered into a series of loan and credit transactions with PNCB and to secure payment of the loans the spouses Laureano, majority stockholders of petitioner corporation executed real estate mortgages over parcels of land registered in their name. Upon failure to pay, PNCB foreclosed and purchased the properties. Thereafter, BORMAHECO INC. bought the properties form PNCB and filed an ex-parte petition for the issuance of writ of possession. Petitioner corporation sought to intervene and have its complaint admitted which the Court of Appeals admitted despite the fact that Petitioner corporation filed it under the name of LIDECO. Bormaheco contended alleging that LIDECO Corporation was not a duly registered corporation, and hence had no legal personality.Issue : W/N petitioner can use LIDECO in its motion to intervene?

Held :

As the trial and appellate courts have held, "Lideco Corporation" had no personality to intervene since it had not been duly registered as a corporation. If petitioner legally and truly wanted to intervene, it should have used its corporate name as the law requires and not another name which it had not registered. Indeed, as the Respondent Court found, nowhere in the motion for intervention and complaint in intervention does it appear that "Lideco Corporation" stands for Laureano Investment and Development Corporation. Bormaheco, Inc., thus, was not estopped from questioning the juridical personality of "Lideco Corporation," even after the trial court had allowed it to intervene in the case.

Islamic Directorate of the Philippines vs. Court of Appeals 272 SCRA 454

IDP was formed by Islamic members in the Philippines, the primary purpose of which is to establish an Islamic Center in Quezon City for the construction of a mosque, school and other religious infrastructures. The Libyan government donated money to purchase lands located in Tandang Sora. However, upon the declaration of martial law, members of the board of trustees flew to the Middle East. Thereafter, 2 muslim groups emerged claiming to be the legitimate IDP members. Carpizo and Abbas group then sold the land located in Tandang Sora to Iglesia ni Cristo. A petition was filed by the current BOT, the Tamano group seeking to have the sale declared null and void. Meanwhile, INC filed an action for specific performance. IDP sought to intervene which was denied by the RTC.

Issue : W/N IDP was duly represented in the case?

Held: No.

IDP cannot be considered essentially a formal party to a case where it was not duly represented by its legitimate governing board. The corporation was not represented by the legal board since at the time the proceedings were held, the issue as to who was the legal board was still pending. Any decision which was rendered by the court cannot become final and executory in so far as IDP is concerned. Such was due to the fact that IDP was denied a day in court. There is no legal representation. Pilipinas Loan Company, Inc. vs. SEC 356 SCRA 193

Petitioner, as stated in its AOI, is a lending corporation on security of real and personal property. Pawn broking however was not among of its function as stated in the AOI. Pilipinas Loan issued a promissory note with contents similar to that of a pawnshop ticket. Filipinas Pawnshop filed a complaint for unfair competition. Pilipinas Loan then questions the jurisdiction of the SEC to hear the complaint.

Issue : W/N Petitioner can engage in pawn broking and whether or not SEC can take cognizance of the case immediately?

Held :

A corporation incorporated to act as a lending investor and prohibited to engage in pawn broking performs an ultra vires act when it engages in business as a pawn broker. A declaration by the Bangko Sentral that a corporation violated PD 114 is not a condition precedent before the SEC can take cognizance of a complaint against a corporation for violation of its primary franchise.

Heirs of Antonio Pael vs. CA 371 SCRA 587

The heirs of Antonio Pael by virtue of a DOA issued a title in PFINAs name in the Registry of Deeds. However, the disputed property was the subject matter of numerous proceedings before different courts. While it is the subject matter of a petition for annulment pending before the CA, PFINA Mining changed its corporate name to PFINA Properties Inc and sought to intervene claiming to have bought the property in 1983. CA found the transfer to be dubious since the Paels were no longer the owner of the property they allegedly assigned.

Issue : W/N PFINA Mining can validly acquire the subject property?Held : A mining corporation has no valid grounds to engage in the highly speculative business of urban real estate development. Such corporation could not have validly acquired real estate property that it claims to have been assigned to it by its owner.