Corporation Law: The Revised Corporation Code of the Philippines - Sec 35

THE REVISED CORPORATION CODE  OF THE PHILIPPINES

Republic Act No. 11232 

TITLE IV -  POWERS OF CORPORATIONS

Section 35. Corporate Powers and Capacity.

Every corporation incorporated under this Code has the power and capacity:

(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 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 purpose s 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.


1. Limited or Special Capacities.

  • A corporation is a person. 
  • As such, "the law vests in corporations rights, powers and attributes as if they are natural persons with physical existence and capabilities to act on their own."
  • However, it is also a "fundamental principle that a corporation is a juridical entity created by law and, therefore, possesses no power or authority other than what is vested by law. A corporation is not like a natural person. The natural person can do anything and everything except that which the law prohibits. But a corporation can only do that which the law authorizes it to perform."
  • "As a creature of law, the power and attributes of a corporation are those set out, expressly or impliedly, in the law."
2. Kinds of Powers. 
A corporation may exercise:
  1. Express powers
  2. Implied powers
  3. Incidental powers

2.01 Express Powers. 
  • Express powers are the powers expressly provided in the:
    • RCCP
    • applicable special laws
    • administrative regulations
    • Articles of Incorporation
  • The express powers under the RCCP include:
    1. The general powers under Section 35, and
    2. The specific powers under Sections 9, 15, and 36 to 43 of the RCCP. 
  • The powers expressly provided for in the RCCP are deemed part of the Articles of Incorporation even if such powers are not enumerated therein..
2.02 Implied Powers. 
  • The existence of implied power is recognized under paragraph (k) of Section 35 of the RCCP. 
  • Under paragraph (k) of Section 35 of the RCCP, a corporation is empowered 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.
  • Implied powers include all powers that are reasonably necessary or proper for the execution of the powers expressly granted and are not expressly or impliedly excluded. 
  • The term "implied powers" has also been defined as one which the law will regard as existing by implication; such power must be one in a sense necessary, i.e., needful, suitable and proper to accomplish the object of the grant — one that is directly and immediately appropriate for the execution of specific powers; and not one that has slight, indirect or remote relation to the specific purposes. 
    1. For instance, a corporation that is engaged in mining has the power to establish a local post office. 
      • The establishment of a post office is a reasonable and proper adjunct to the conduct of the business of the company. Indeed, such post office is a vital improvement in the living condition of its employees and laborers who come 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.
    2. Similarly, a corporation that is authorized to operate a cement factory has the implied power to operate an electric power plant for such factory.
    3. A corporation engaged in advertising business may pursue any and all related activities covered by the purpose clause. 
      • The purpose clause of one corporation states: "The primary purpose of this corporation is to engage in, operate and maintain an advertising, promotions and wholesale marketing business." With such primary purpose, the corporation can legally engage in the business of supplying, managing, selling and/or subleasing out to third persons, indoor and outdoor advertising materials, sites and spaces in the Philippines,
    4. The SEC opined that manufacturing is not implied from or incidental to the business of selling that is stated in the Articles of lncorporation.
      • A seller, dealer, trader or importer of goods does not automatically classify one as manufacturer because manufacturing is not fairly and reasonably necessary or incidental to the business of selling. 
      • However, a manufacturing corporation has an implied power to sell what it manufactures. 
    5. A corporation cannot operate an online casino on the basis of its secondary purpose to operate amusement centers for various computer games.
      • "The business concept of an amusement center is mainly for entertainment purposes. On the other hand, an online casino is primarily for gambling activity, the amusement aspect being merely incidental."
    6. A corporation with a primary purpose of trading goods can likewise import goods. 
      • The term "trading" necessarily includes the activity of importation. 
      • Even if there is no express provision in the Articles of Incorporation allowing importation, the power to import is subsumed in the trading activity.
    7. If the primary purpose of a corporation is international freight forwarding, the said corporation can also perform other forwarding services such as trucking. 
    8. If the purpose of a corporation is to engage in retail — directly selling goods to the general public, it is not necessary for the corporation to amend its purpose clause in order to include e-commerce or particularly selling goods online. 
      • The power to engage in e-commerce is necessary for the accomplishment of the purpose of the corporation. 
      • A corporation that is authorize to sell in general may do so online.
2.03 Incidental Powers. 
  • Incidental powers are powers that are deemed conferred on the corporation because they are incidental to the existence of the corporation. 
  • Corporations have incidental powers as a consequence of the fact that they exist as juridical persons. 
  • Incidental powers include: 
    1. right to succession
    2. right to have a corporate name
    3. right to make by-laws for its government
    4. right to sue and be sued, and
    5. right to acquire and hold properties for the purposes authorized by the charter
3. Test to Determine if Power is Implied. 
  • The corporation has the powers expressly granted in its charter or in the statutes under which it is created or such powers as are necessary for the purpose of carrying out its express powers. 
    • Only such powers as are reasonably necessary to enable corporations to carry out the express powers granted and the purposes of the creation are implied. 
  • Powers merely convenient or useful are not implied if they are not essential, having in view the nature and object of the corporation. 
  • The Supreme Court explained that "it is a question, therefore, in each case of the logical relation of the act to the corporate purpose expressed in the charter. If that act is one which is lawful in itself, and not otherwise prohibited, is done for the purpose of serving corporate ends, and is reasonably tributary to the promotion of those ends, in a substantial, and not in a remote and fanciful sense, it may fairly be considered within charter powers."
  • The test to be applied is:
    • " ... whether the act in question is in direct and immediate furtherance of the corporation's business, fairly incident to the express powers and reasonably necessary to their exercise. If so, the corporation has the power to do it; otherwise, not. (Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266- 268)"
  • Thus, in determining what businesses may be carried on by a corporation, reference must be made to its Articles of Incorporation and unless the power to carry a particular business is either expressly or impliedly conferred thereby, it does not exist. 
    •  There should be a specification of the corporation's intended purpose with sufficient clarity and elucidation in the Articles of lncorporation in order to define with more certainty the scope of its business.
  • In construing the powers of the corporation, the language of the charter should in general neither be construed strictly nor liberally but according to the fair and natural import of it, with reference to the objects of the corporation.
  • It is a general rule that when the charter of a corporation confers certain enumerated powers, it is to be construed as including powers reasonably necessary for the proper exercise of the enumerated powers and excluding all other non-enumerated powers. 
    • For example, if the purpose of the corporation is to engage in delivery service by air and sea, messengerial delivery service is deemed excluded because it is not necessary to the proper exercise of the express purpose.

4. Stretching the Purpose Clause. 
  • The SEC adopted the "Stretching of Purpose Clauses Rule" under which it is legal to stretch the meaning of the purpose clause to cover new and unexpected situations. 
    • Situations and circumstances may arise which could not have been foreseen at the time of incorporation that can be accommodated by the "stretched" interpretation of the purpose clause. 
    • There is no more need to amend the Articles of Incorporation to accommodate the new situations
      • For instance, a provision in the Articles allowing a corporation to "affiliate or contract with other local and international organizations" may be stretched and construed in such a way as to allow the corporation to remit donations to a foreign organization.
5. Specific Powers. 
  • The specific powers of corporations are provided for in the RCCP, including the specific requirements and/or procedure for their exercise. These include the following powers: 
    1. to extend or shorten the corporate term under Sections 11 and 36; 
    2. to amend the Articles of Incorporation under Section 15;
    3. to increase or decrease the capital stock under Section 37; 
    4. to incur create or increase bonded indebtedness also under Section 37; 
    5. to deny pre-emptive right under Section 38; 
    6. to sell or dispose of all or substantially all of the assets of the corporation under Section 39;
    7. to acquire its own shares under Section 40; 
    8. to invest corporate funds in another corporation, business or for any other purpose under Section 41;
    9. to declare dividends under Section 42; and 
    10. to enter into a management contract under Section 43
6. General Powers. 
  • As a rule, the Board exercises the general powers of the corporation. 
  • Generally, approval of a resolution by the Board is enough for the exercise of such powers. 
  • The exercise of general powers and all regular business transactions is covered by Section 52 of the RCCP that provides that every decision of at least a majority of the directors or trustees present  at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all members of the Board.
  • The general powers are:
    1. Power to sue and be sued.
    2. Power of succession.
    3. Power to adopt and use a corporate seal.
    4. Power to amend Articles of lncorporation.
    5. Power to adopt By-Laws.
    6. Powers regarding shares and membership.
    7. To acquire, sell, lease or otherwise deal with real or personal property.
    8. To enter into Merger, Consolidation.
    9. To Enter into a Partnership and Joint Venture.
    10. To make reasonable donations.
    11. To give donation for Partisan Political Activity.
6.01. Power to sue and be sued.
  • One of the incidental powers of a corporation is the power to sue and be sued. "The power is granted to a duly organized corporation, unless specifically revoked by another law."
  • The power to sue is exercised by the corporation through the:
    • Board and/or 
    • duly authorized officers and agents
  • The Court explained in Philippine Numismatic Ad Antiquarian Society v. Aquino, et al., G.R. 206617, January 30, 2017:
    • ''The rule on real party-in-interest ensures, therefore, that the party with the legal right to sue brings the action, and this interest ends when a judgment involving the nominal plaintiff will protect the defendant from a subsequent identical action. Such a rule is intended to bring before the court the party rightfully interested in the litigation so that only real controversies will be presented and the judgment, when entered, will be binding and conclusive and the defendant will be saved from further harassment and vexation at the hands of other claimants to the same demand.
    • In the case at bar, PNAS, as a corporation, is the real party-in-interest because its personality is distinct and separate from the personalities of its stockholders. A corporation has no power, except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. In sum, a corporation exercises said powers through its board of directors and/or its duly-authorized officers and agents. Thus, it has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by the corporate by-laws or by a specific act of the board of directors. It necessarily follows that "an individual corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of directors.
    • Section 23, in relation to Sec. 25 of the Corporation Code30 clearly enunciates that all corporate powers are exercised, all business conducted, and all properties controlled by the board of directors. A corporation has a separate and distinct personality from its directors and officers and can only exercise its corporate powers through the board of directors. Thus, it is clear that an individual corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of directors. Absent the said board resolution, a petition may not be given due course. The application of the rules must be the general rule, and the suspension or even mere relaxation of its application, is the exception. This Court may go beyond the strict application of the rules only on exceptional cases when there is truly substantial compliance with the rule."
  • Generally, corporations are required to attach a copy of the Board Resolution authorizing the filing of the complaint or petition. 
    • The 1997 Rules of Civil Procedure and Supreme Court Circular 28-91 require the parties themselves to sign and submit a certificate on non-forum shopping. 
    • Such requirement cannot be imposed directly on artificial persons, like corporations, for the simple reason that they cannot personally do the task themselves. 
    • Corporations act only through their officers and duly authorized agents.
    • In fact, only specifically authorized individuals may perform physical actions, like the signing and the delivery of documents, in behalf of the corporate entity. 
    • It is noteworthy that the rules do not require corporate officers to sign the certificate. 
    • More importantly, there is no prohibition against authorizing agents to do so. Hence, even a retained counsel may be authorized by the board to execute the certificate. What is important is that there is a Board resolution giving such authority.
    • If no power of attorney, secretary's certificate or Board resolution is attached to the petition or complaint, the pleading is not properly verified and should be treated as an unsigned pleading. 
      • A person, including the counsel of the corporation, who alleges that he is duly authorized to file an action must present a resolution issued by the Board that specifically authorized him to institute the action and execute the certification against forum shopping. 
      • Only then would his actions be binding on the corporation
  • It should be recalled that the authority may be impliedly given by the Board. It was observed that it appears that implied authority is not acceptable for purposes of complying with the requirement on the submission of the certification against forum shopping because only a duly certified copy of the Board resolution is acceptable as a formal requirement. 
  • However, the Supreme Court has since relaxed the rule by ruling that in exceptional cases, certain officers have implied authority to sign the certification on non-forum shopping. In those exceptional cases, the Supreme Court dispensed with the requirement of submission of a Board resolution. Thus, in Cagayan Valley Drug Corporation v. Commission on Internal Revenue, the Court, in summarizing numerous jurisprudence, "rendered a definitive rule that the following officials or employees of the company can sign the verification and certification without need of a board resolution: 
    1. the Chairperson of the Board of Directors
    2. the President of a corporation
    3. the General Manager or Acting General Manager
    4. Personnel Officer, and 
    5. an Employment Specialist in a labor case
  • The rationale behind the rule is that these officers are in a position to verify the truthfulness and correctness of the allegations in the petition."
6.02. Power of succession. 
  • Section 35 of the RCCP is explicit that a corporation has the power and capacity to have perpetual existence unless the certificate of incorporation provides otherwise. 
  • Thus, if there is no fixed term, the right of the corporation to exist continues until it is dissolved. 
6.03. Power to adopt and use a corporate seal. 
  • The power to adopt and use a seal of corporations can be traced in ancient common law where all actions of the corporation were required to be under seal. 
    • Under the RCCP, a seal is not indispensable for the transactions or contracts of the corporation. 
    • A document may be considered valid and binding even in the absence of a seal. 
  • However, one instance when a seal is necessary is with respect to the certificate of stock as provided for under Section 62 of the RCCP.
6.04. Power to amend Articles of lncorporation. 
  • Section 35 provides that the power to amend the Articles of Incorporation must be in accordance with the provisions of the RCCP. 
  • The provisions adverted to are those under Section 15 of the RCCP. 

6.05. Power to adopt By-Laws.
  • It is implicit from Section 45 of the RCCP that a corporation's life may start even without the By-Laws. 
    • The By-Laws may be filed after incorporation. 
  • The existence of the power of the corporation to adopt By-Laws does not, ordinarily and of necessity, make the exercise of such power essential to its corporate life or to the validity of its acts.
  • 0By-Laws are meant to regulate the manner of conducting the internal affairs of the corporation. 
  • Section 35(e) of the RCCP expressly provides that the power to adopt, amend or repeal By-Laws is subject to the condition that the By-Laws must not be contrary to law, morals, or public policy.
6.06. Powers regarding shares and membership. 
  • The subscribers, and not the stock corporation, are the owners of the shares therein. However, the corporation has certain powers relating to shares, including: 
    • the power to issue previously unsubscribed shares; 
    • the power to sell treasury stocks; 
    • the power to sell delinquent shares; 
    • the power to acquire its own shares in proper cases;
    • the power to redeem redeemable shares; 
    • the power to increase or decrease the par value of shares; and
    • the power to resort to stock split. 
  • On the other hand, a non-stock corporation has the power to admit members to the corporation. The corporation may prescribe the qualifications of members and may provide for grounds for their disqualification. 
6.07. To acquire, sell, lease or otherwise deal with real or personal property. 
  • A corporation has the power "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."
    • The power to sell, acquire, lease or otherwise convey real or personal property is vested in the Board of Directors. 
    • "While a corporation may appoint agents to negotiate for the purchase of real property needed by the corporation, the final say will have to be with the Board, whose approval will finalize the transaction."
  • If the power to sell land is conferred to an agent, there must be a written contract of agency for such purpose and the special power of attorney, including the Board resolution, must expressly confer such specific power to sell the specified parcel of land.
    • If the power is not expressly conferred, the sale is not yet binding on the corporation even if the buyer already made a deposit.
  • The Board can exercise this power under Section 35(g) of the RCCP without concurrence of the stockholders. Stockholders' approval is necessary only in cases covered by Section 39 (sale of all or substantially all of the assets) and Section 41 of the RCCP. 
    • Thus, in the absence of an express restriction in the Articles of Incorporation and By-laws, a corporation may, through a board resolution, validly lease or acquire real property from another person if it does so in good faith and in the legitimate furtherance of its corporate purposes to further the interest of the corporation without securing the consent of the stockholders. 
    • The corporation may also sell its properties in the ordinary course of its business without prior approval of stockholders.
  • There are two basic requirements in order that a corporation can deal with real or personal property, which requirements are as follows:
    1. It must be reasonably and necessarily required by the transaction of the lawful business of the corporation; and
    2. It is subject to limitations prescribed by law and the Constitution. 
  • Even in the cases that are not covered by Sections 39 and 41 of the RCCP, the By-Laws of' the corporation may expressly require the approval of the stockholders for the sale of the corporate property. 
    • In the absence of any provision in the By-Laws as to the number of votes required, the vote of stockholders representing the majority of the outstanding capital stock is sufficient to approve the sale.
  • Temporary lease of corporate property is allowed even if a corporation is not engaged in the business of leasing properties. The SEC imposed the following requirements for such temporary lease:
    1. the property is not presently used by the corporation and leasing of the property is not made on a regular basis;
    2. leasing the property will make it productive instead of allowing them to remain idle;
    3. there is no express restrictions in the Articles of Incorporation and By-Laws; and 
    4. leasing the property is not used as a scheme to prejudice corporate creditors or result in the infringement of the trust fund doctrine. 
  • A corporation can acquire usufruct over an immovable property. 
    • However, Article 605 of the New Civil Code provides that usufruct cannot be constituted in favor of a corporation for more than 50 years.
    • If usufruct has been constituted in favor of a corporation and the corporation is dissolved before the expiration of the period of usufruct, the usufruct shall be extinguished by reason thereof. 
    • A usufruct is meant only as a lifetime grant.
    • Unlike a natural person, a corporation's lifetime may be extended, in which case, the usufruct may also be extended.
6.08. To enter into Merger, Consolidation. 
  • Section 35(h) of the RCCP expressly provides that the corporation has the power to enter into merger and, consolidation. 
  • Merger occurs when one corporation absorbs another constituent corporations. 
  • On the other hand, there is consolidation when two or more corporations form a new single corporation. 
  • The rules on merger and consolidation are provided for in Sections 75 to 79 of the RCCP. 
6.09. To Enter into a Partnership and Joint Venture. 
  • Section 35 (h) of the RCCP expressly provides that corporations can now enter into a contract of partnership, joint venture and other commercial agreements with natural and juridical persons.
    • There was no express prohibition for corporations to enter into a partnership under the Corporation Code and the New Civil Code. 
    • However, the doctrine under the same laws was that a corporation, as a general rule, cannot become a member of a partnership in the absence of express authorization by statute or charter.
  • The limitation was based on public policy since in a partnership, the corporation would be bound by the acts of persons who are not its duly appointed and authorized agents and officers, which would be entirely inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively.
  • The Supreme Court further explained in Mendiola v. Court of Appeals that the prohibition is justified by the following: 
    1. that the mutual agency between the partners would be inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively; and 
    2. that such an arrangement would improperly allow corporate property to become subject to risks not contemplated by the stockholders when they originally invested in the corporation. 
  • It should also be noted that the SEC previously allowed a corporation to enter into a partnership but the SEC required that the agreement on the Articles of Partnership must provide that all the partners shall manage the partnership and the same Articles must stipulate that all the partners shall be jointly and severally liable for all the obligations of the partnership. 
    • Later, the SEC abandoned this opinion and thereafter allowed corporations to be limited partners only. With the provisions of Section 35(h) of the RCCP, a corporation can now join a partnership, whether the partnership is limited or not. 
  • To Enter into a Joint Venture.
    • A corporation can enter into a joint venture agreement even under the Corporation Code. 
    • Joint venture is an organization formed for some temporary purpose. 
    • It is hardly distinguishable from the partnership, since their elements are similar — 
      • community of interest in the business
      • sharing profits and losses
      • mutual right of control
    • It was further explained that "it would seem that under Philippine law, a joint venture is a form of a partnership and should thus be governed by the law of partnerships.
6.10. To make reasonable donations. 
  • Section 35(i) of the RCCP empowers the corporation to make reasonable donations, including those for the:
    • public welfare 
    • hospital, charitable, cultural, scientific, civic, or similar purposes. 
  • Without an express grant of power, a stock corporation is generally not allowed to donate portions of its assets. 
  • However, consistent with Corporate Social Responsibility Theory, the RCCP now allows corporations to make donations so long as the following are complied with: 
    1. the donation must be reasonable; and
    2. the donation must be for valid purposes including public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes; and
    3. if the corporation is a foreign corporation, the donation must not be in aid of any political party or candidate or for purposes of partisan political activity. 
  • The SEC observed that the donation must bear a reasonable relation to the corporation's interest and not be so remote and fanciful.
    • In a case decided under the old Corporation Law, the Supreme Court adopted the view that even if a corporation cannot contribute to charity or benevolence, it is not forbidden from recognizing moral obligations of which strict law takes no cognizance. 
  • A corporation is not prohibited from establishing a reputation for broad, liberal, equitable dealing which may stand them in good stead in competition with less fair rivals. 
    • Thus, an incorporated fire insurance company, whose policies except losses from explosions, may nevertheless pay a loss from that cause when other companies are accustomed to do so, such liberal dealing being deemed conducive to the prosperity of the corporation.
  • A corporation is likewise empowered to accept donations when it is necessary to carry out its express powers. 
    • Thus, a corporation was allowed to accept donations to enhance its community development projects as an exercise of implied power. 
    • The SEC noted however that there must be compliance with Act No. 4075, as amended by Presidential Decree No. 1564 and the rules issued by the Department of Social Welfare and Development.
6.11. To Give Donation for Partisan Political Activity. 
  • Section 35(i) of the RCCP expressly provides "that no foreign corporation shall give donations in aid of any political party or candidate or for purposes of partisan political activity." 
    • Such donation is prohibited whether or not the conveyance is covered by a formal deed of donation. 
    • For example, there is already a prohibited donation if a corporation pays for the public address system in a political rally.
  • Noticeably, the prohibition to donate to candidates under Section 35(i) of the RCCP is limited to foreign corporations. 
    •  By implication, domestic corporations are now allowed to make contributions to candidates and for partisan political activities. 
    • It was explained by the principal sponsor that: "It is common knowledge that such things happen although not expressly stated. As such, he said that he would be amenable to allowing domestic corporations to make political contributions, and that such prohibition should only be applicable to foreign corporations."
    • When it was suggested that proper safeguards or limitations or conditions should be imposed, like putting a cap. on the amounts to be donated, the sponsor stated that he believed that the limitations "should be included in the Omnibus Election Code and insofar as the Corporation Code [RCCP] is concerned, it would just recognize that corporations may contribute to candidates.
  • It appears that the new rule allowing donations by domestic corporations in aid of a candidate or political party or for partisan political activity is merely aimed to legalize the current practice. 
    • The right of the domestic corporation is still considered statutory rather than Constitutional. 
    • The right is moored on a narrow ground and may be taken away or even restricted by Congress through the Omnibus Election Code. 
  • The present rule under the RCCP is in contrast with the heavily criticized rule in the United States which declared unconstitutional a Federal law that prohibited corporations and unions from using their funds to make independent expenditures for speech defined as an "electioneering communication" or for speech expressly advocating the election or defeat of a candidate.
    • The ruling is premised on the recognition of corporations as persons under the Constitution and recognition that protection to free speech extends to corporations. The protection has even been extended by explicit holdings to the context of political speech.
    • The Supreme Court of the United States even invalidated restrictions on the amount of independent corporate expenditure explaining that: "The appearance of influence or access, furthermore, will not cause the electorate to lose faith in our democracy. 
    • By definition, an independent expenditure is political speech presented to the electorate that is not coordinated with a candidate. The fact that a corporation, or any other speaker, is willing to spend money to try to persuade voters presupposes that the people have the ultimate influence over elected officials. This is inconsistent with any suggestion that the electorate will refuse to take part in democratic governance' because of additional political speech made by a corporation or any other speaker.
6.12. To establish pension, retirement, and other plans. 
  • Section 35(g) provides that a corporation has the power to establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees. 
  • The power of the corporation to grant gratuity pay to employees is covered by such provision. Stockholders' approval is no necessary. 
    • The retirement fund established by the corporation may gain tax exempt status under the National Internal Revenue Code. 
    • There is no similar provision under the old Corporation Law that authorizes a corporation to establish a pension, retirement and other plans. 
    • However, in Maria Carla Pirovano, et al. v. JJ De la Rama Steamship, the Supreme Court explained that the weight of authority is that it is within the powers of a stock corporation to grant a gratuity to an employee. 
    • A gratuity is a bounty or gift given in return for a favor or services. 
    • Under the same principle, the Court ruled that a gratuity may be in the form of a remunerative donation.
7. Other Powers. 
  • Section 35 of the RCCP provides that the corporation is empowered 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. 
  • Thus, the corporation has the power to:
    • hire employees
    • engage the services of contractors
    • open bank accounts, and 
    • other matters that are necessary for its operations
  • The other powers are:
    1. To Borrow Funds. 
    2. To Act as Surety or Guarantor.
7.01. To Borrow Funds. 
  • The power to borrow money is auxiliary to the primary purposes of the corporation. 
    • A board resolution is necessary for such purpose because a special power of attorney is necessary to confer such power under Article 1878 of the New Civil Code.
    • It is only duly authorized representatives that must secure loans in behalf of the corporation. 
    • If the loan is the personal debt of the corporate officer, the corporation is under no obligation to pay the loan.
7.02. To Act as Surety or Guarantor.
  • The general rule is that a corporation may not ordinarily be bound by a contract of guarantee or surety for the benefit of third persons.
    • In the absence of an express power in the Articles of Incorporation, the power to act as surety or guarantor cannot be justified under Sections 2, 35, and 44 of the RCCP.
    • Such power is not a necessary nor an incidental power. 
    • However, such guaranty may be given in the accomplishment of any object for which the corporation was created, or when the particular transaction is reasonably necessary or proper in the conduct of its business.
  • Consistently, a corporation cannot act as an accommodation party in a negotiable instrument. 
    • The corporation shall not be bound by a signature that will make it an accommodation maker, drawer or indorser of the instrument. 
    • Issuance or indorsement of a negotiable instrument without consideration and for the accommodation of another is ultra vires
7.03. To Mortgage. 
  • The conferment of power to borrow money for corporate purposes likewise includes the conferment of power to mortgage the properties of the corporation to secure its obligations. 
  • "Corporate assets may be mortgaged by authorized directors or officers on behalf of the corporation as owner, as the transaction of the lawful business of the corporation may reasonably and necessarily require."
  • In University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, et al., the Supreme Court explained that the petitioner University "does not have the power to mortgage its properties in order to secure loans of other persons. As an educational institution, it is limited to developing human capital through formal instruction. It is not a corporation engaged in the business of securing loans of others." 
    • Mortgage of its properties to secure a loan of third persons is deemed ultra vires.
  • While generally, the corporation cannot mortgage its properties to secure the obligation of third persons, it has been recognized that the corporation can mortgage its properties to secure the obligation of a subsidiary. 
    • In one case, the Supreme Court sustained the validity of a mortgage to secure the obligations of a "sister company" under the New Civil Code provision that third persons who are not parties to the principal obligation may secure the latter by mortgaging their own properties.
  • Exceptionally, the SEC opined that the corporation can mortgage its properties for the obligations of another corporation which is not its subsidiary provided the following requirements are present:
    • there is no express restriction m the Articles of Incorporation and By-Laws; 
    • the purpose of the mortgage is not illegal;
    • consent of all corporate creditors and stockholders must be secured;
    • the transaction is not used as a scheme to defraud or prejudice corporate creditors or result in the infringement of the Trust Fund Doctrine; 
    • the mortgage will not hamper the continuous business operation of the corporation; and
    • the accommodated third party involved in the mortgage is financially solvent and capable of paying its obligation.
8. Practice of Profession. 
  • Under present laws, certain professionals are allowed to incorporate corporation for the pursuant of their respective professions. 
  • The Eleventh Foreign Investment Negative List enumerates the professions where corporate practice is allowed subject to the pertinent conditions and requirements imposed by the specific regulatory statutes that apply to them: 
    1. Aeronautical engineering (Sec. 28, P.D. No. 1570);
    2. Agricultural and biosystems engineering (Sec. 29, RA No. 10915);
    3. Architecture (Sec. 37, R.A. No. 9266); 
    4. Chemistry (Sec. 35, R.A. No. 10657); 
    5. Electronics Engineering (Sec. 28, R.A. No. 9292); 
    6. Environmental Planning (Sec. 25, R.A. No. 10587);
    7. Forestry (Sec. 25, R.A. No. 10690); 
    8. Guidance and counseling (Sec. 27; R.A. No. 9258); 
    9. Interior Design (Sec. 26, R.A. No. 10350);
    10. Landscape architecture (Sec. 26, R.A. No. 9053);
    11. Naval architecture (Sec. 30 [g], R.A. No. 10698);
    12. Psychology (Sec. 33, R.A. No. 10029);
    13. Real Estate Service (real estate consultant, real estate appraiser, real estate assessor; real estate broker, and real estate salesperson) (Sec. 32, R.A. No. 9646); 
    14. Sanitary Engineering (Sec. 30, R.A. No. 1364); and
    15. Social work. (R.A. No. 4373)
  • However, it is also well to note the view that the corporate practice of any profession must never be sanctioned. 
    • It was explained that "the public policy behind such ruling is universal, and 1s based on the notion that ethics of any profession is based upon individual responsibility, personal accountability and independence, which are all lost where one verily acts as a mere agent, or alter ego, of unlicensed persons or corporations."
  • Nevertheless, despite such opinion, current special laws now allow specific professionals to organize a corporation for the practice of their profession. 
    • Special laws provide for special rules that take into consideration the peculiar nature of the professional corporation. 
    • For example, the conditions for the establishment of corporations for the practice of architecture depart from the general features of corporations. 
    • Thus, the limited liability of shareholders and officers cannot be strictly applied because individual members shall be responsible even for their "collective acts as an entity." 
    • This is true with respect to the other professions that are allowed to incorporate. Even if there is no express provision, personal liability of the member professionals can hardly be avoided because the individual professionals are the ones who are actually practicing the profession. 
    • The acts of the architects cannot be separated from the acts of the corporation when it comes to the practice of profession. In fact, what happens is that more persons are responsible because the individual members are liable for collective acts.
PROBLEMS:
The Articles of Incorporation of X Jewelers Corporation states: "Second: That the primary purpose of this corporation is to engage in the business of manufacturing goods such as jewelry and to trade the same on wholesale." Is it qualified to engage in jewelry assaying and refining activities if the same is not expressly provided for as secondary purpose? 
Yes, jewelry assaying and refining activities are implied powers of the corporation. The purpose clause can be reasonably stretched or construed to cover matter or objects that could not have been explicitly mentioned at the time of incorporation but is closely related to the expressed corporate purpose or impliedly included therein. Jewelry manufacturing stated in the purpose clause is encompassing and covers assaying and refining activities. (SEC Opinion dated December 17, 1999)

The primary purpose of Corporation A is to carry mineral 3. exploration and exploitation. Can it engage in manning or crewing business if the same is not stated as a secondary purpose? 
No. The corporation cannot engage in crewing business because the same is not expressly stated and cannot be implied from the expressed purposes. It is allowed to own, manage or operate vessels and recruit the crew therefor only if it is necessary in carrying out its mineral exploitation and exploration business. (SEC Opinion, February 7, 1994)

The purpose clause of the Articles of Incorporation of XYZ Corporation states: "To engage in and carry on a general mercantile and commercial business of buying, acquiring, holding, assembling, importing and exporting, selling or otherwise disposing of and dealing in any goods, merchandise and commodities, particularly computer and its peripherals, electronic, industrial and engineering items of every kind, and all kinds of products, natural or artificial, of the Philippines or other countries, which are or may become articles of commerce." Can XYZ Corporation lawfully enter into computer maintenance service contracts? 
No. The purpose clause does not authorize the corporation to engage in computer maintenance service. It is well-settled that a corporation has only such express, implied or incidental powers. Computer maintenance service cannot be classified as express, implied or incidental power. Tqus, amendment of the Articles of Incorporation is necessary for such purpose. (SEC Opinion, December 23, 1992)

The purpose clause of the Articles of Incorporation of ABC Corporation states: "To acquire by purchase, lease, donation or other modes of acquisition and to own, use, improve, develop, sell, mortgage, exchange, lease and hold for investment or otherwise, real estates of all kinds and to build or cause to be built on any such land owned, held or occupied for management or disposition, buildings, houses or other structure with their appurtenances." Can ABC Corporation engage in the business of operating memorial parks? 
No. A corporation may only exercise powers that are expressly provided for, or that are implied or incidental to its existence. Memorial park business is not expressly included in the purpose clause of the Articles of Incorporation of subject corporation. Neither is the activity necessary or incidental in the furtherance of the corporation's present business, which is realty. Accordingly, the corporation cannot, on the basis of its present purpose clause engage in memorial park business. Should the corporation desire to undertake said business, it should amend its Articles of Incorporation to include it in its purpose clause. (SEC Opinion, September 1, 1993) 

The primary purpose of G Corporation stated in its Articles of Incorporation is as follows: "That the purpose for which the Corporation is formed, is to carry on the business, insofar as the same may be now or hereafter permitted by law, of transmitting and receiving, for itself and for others, communications of every kind, news, music, messages, instruction, entertainment, pictures, advertising, light and energy in any form, by means of electricity, electromagnetic waves, or any other kind of energy, force, vibrations or impulses, whether conveyed by wires, radiated through space, or transmitted through any other medium, to supply facilities for such purpose; and to charge and receive compensation therefore for tolls and charges. To purchase, hold, operate, use, convey, lease, rent, mortgage, encumber, or otherwise deal in such real and personal property in any part of the Philippines, or elsewhere as the purposes for which the corporation is formed may permit, and as may be convenient or necessary for the transaction of the lawful business of the Corporation." Can G Corporation sell and distribute cellular phones, accessories, and other related telecommunications equipment? 
Yes, the sale of cellular phones, accessories and other telecommunications equipment can be considered an implied power. They are allowed under Section 35 and Section 39 of the Revised Corporation Code. Section 35(g) authorizes the corporation 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. Section 39 of the Revised Corporation Code provides that a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge, or otherwise dispose of its property and assets, upon such terms and conditions and for such consideration, which may be money, stocks, bonds, or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient. In this case, the sale of the properties is reasonably required by the lawful transaction of its business expressed in the purpose clause. The sale of those products is part of its telecommunication services to the public. Hence, the sale of cellular phones, accessories and other telecommunications equipment to the public is part of the powers of the corporation. (SEC Opinion dated May 31, 2001)

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