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Corporation Law Jurisprudence · Podcast Episode 5 · 13:53
Ultra Vires: Labas sa Kapangyarihan ng Corporation, May Bisa Ba?
When a corporation acts beyond its powers, is the contract still binding?
A mining company asked the government for a post office at its camp, and its board accepted full responsibility for the postmaster’s cash. When a shortage was found, the company called its own resolution ultra vires. Atty. Jeric Dave Gallardo and Sweet Zel Grace Porras walk through three Supreme Court decisions on acts beyond a corporation’s powers, and why two corporations were bound and one was not.
Three cases, two answers
Same question. Different facts. Different results.
The rule
A corporation has only the powers given by law and by its articles of incorporation, and those necessary or incidental to exercising them.
An act beyond those powers is ultra vires. If it is merely ultra vires and not illegal, it is voidable: the stockholders may ratify it, or the corporation may be estopped from denying it. An illegal act is void.
Recap
- A corporation has only the powers given by law and by its articles of incorporation, and those necessary or incidental to exercising them (Sec. 44).
- An act that is merely ultra vires is voidable: the stockholders may ratify it, or the corporation may be estopped. An illegal act is void, and nothing can save it.
- An officer’s authority and the corporation’s power are different questions. Apparent authority cannot supply a power the corporation does not have.
Bar tip
When asked whether an ultra vires contract is valid, start with Sec. 44 of the Revised Corporation Code. Then ask three questions: is the act connected to the business, is it illegal or merely ultra vires, and was there ratification or estoppel? Acoje for estoppel, Pirovano for ratification, University of Mindanao for not bound.
The law
Revised Corporation Code (R.A. No. 11232, February 20, 2019)
“No corporation shall possess or exercise corporate powers other than those conferred by this Code or by its articles of incorporation and except as necessary or incidental to the exercise of the powers conferred.”Sec. 44, Ultra Vires Acts of Corporations (formerly Sec. 45, B.P. Blg. 68)
Chapters
- 0:00Cold open: they asked for it, then called it ultra vires?
- 1:43What is ultra vires? Sec. 44 and the Montelibano test
- 3:24Case 1: Republic vs. Acoje Mining Company, Inc. (bound)
- 5:50Case 2: University of Mindanao, Inc. vs. Bangko Sentral ng Pilipinas (not bound)
- 8:23Case 3: Pirovano vs. The De la Rama Steamship Co. (bound)
- 11:01Why the different answers? Three questions
- 12:22Recap and bar tip
Cases cited
Full text on LawPhil. Where we have written a case digest, the card opens it.
Next episode
The business judgment rule: the act was within the corporation’s powers and approved by the board, but the company lost money. Can the directors be sued?
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