a. Repository of Corporate Powers

By the Board of Directors

The Board of Directors is the main agency by which all corporate powers and authority are exercised

General rule: Majority vote of the Board is needed in the following instances:

• Extension or shortening of the corporate term
• Increase or decrease of capital stock or the creation of bonded indebtedness
• Sale or other disposition corporate assets
• Sale or other dispositions of all or substantially all corporate assets (with 2/3 stockholders or members authorization, Sec 39 of RA 11232 ¹)
• Acquisition of its own shares
• Investment of corporate funds in any corporation or business or for any purpose other than its primary purpose (with 2/3 stockholders ratification, Sec. 41 of RA 11232 ²)
• Declaration of cash, property, and stock dividends (if stock dividends, it must be joined with 2/3 vote of shareholders, sec. 42 of RA 11232 ³)
• Entering into management contracts (accompanied by the approval of the shareholders or members, Sec. 43 of RA 11232 ⁴)

By the Officers

The officers shall manage the corporation and perform such duties as may be provided in the bylaws and/or as resolved by the board of directors. (Sec. 24)⁵

Executive Committee (Sec. 34)

General rule: The Executive Committee may act, by majority vote, on specific matters within the competence of the board as delegated to it. Such an Executive Committee may be established if the bylaws so provide.

Exception:

• Acts where stockholders’ approval is also needed
• Filling vacancies within the Board of Directors
• Amending, repealing or adopting by-laws
• Amending or repealing resolutions of the Board where the resolution by express terms is not so amendable or repealable by the Executive Committee
• Distribution of cash dividends

Powers of the Board of Directors

General Rule: The Board of Directors ALONE exercises the powers of the corporation.

Exceptions: Other persons or groups within the corporation may do so similarly:

• Under a duly approved management contract (RA 11232, Sec. 43);
• An executive committee may exercise powers delegated by the board, if the bylaws so provide (RA 11232, Sec. 34);
• Corporate officers (e.g. the President) via authority from (1) law, (2) corporate by-laws; and (3) authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business;
• A corporate agent in transactions with third persons to the extent of the authority to do so has been conferred upon him;
• Those with apparent authority (doctrine of apparent authority).

Theories on Source of Board Power

• Directly-Vested / Original Power Pursuant to Section 22 of RA 11232⁶, the source of power of the Board of Directors is primarily and directly vested by law; it is not a delegated power from the stockholders or members of the corporation
• Delegated Powers from Stockholders - The Board of Directors is a creation of the stockholders and controls and directs the affairs of the corporation by delegation of the stockholders. By drawing to themselves the powers of the corporation, they occupy positions of trusteeship in relation to the stockholders.

Doctrine of Ratification

The corporation may ratify the unauthorized acts of its corporate officer. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ratification can be made either expressly or impliedly through conduct showing informed approval, such as knowing acceptance of benefits. In Yasuma v. Heirs of Cecilio S. De Villa, G.R. No. 150350, 22 August 2006, the unauthorized loan and mortgage did not bind the corporation⁷. But illegal acts cannot be ratified.

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 him out to the public possessing the power to so do those acts; and 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. (Francisco v. GSIS, G.R. No. L-18287, 30 March 1963)⁸

Apparent authority may be ascertained through:

• The general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or
• The acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.

If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that the apparent authority is real as to innocent third persons dealing in good faith with such officers or agents.

Note: It requires presentation of evidence of similar acts executed either in its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation (People’s Aircargo and Warehousing Co., Inc. v. CA., G.R. No. 117847, 1998).

When the officers or agents of a corporation exceed their powers in entering into contracts or doing other acts, the corporation, when it has knowledge thereof, must promptly disaffirm the contract or act and must not allow the other party or third persons to act in the belief that it was authorized or has been ratified. If it acquiesces, with knowledge of the facts, or fails to disaffirm, ratification will be implied or else it will be estopped to deny ratification (Premiere Development Bank vs. CA, G.R. No. 159352, 2004).

Business Judgment Rule

Questions of policy or management are left solely to the honest decision of officers and directors of a corporation and the courts are without authority to substitute their judgment for the judgment of the board of directors; the board is the business manager of the corporation and so long as it acts in good faith its orders are not reviewable by the courts or the SEC. The directors are also not liable to the stockholders in performing such acts (Philippine Stock Exchange, Inc. v. CA, GR No. 130644, 1997).

Apparent authority may be ascertained through:

• The general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or
• The acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.

If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that the apparent authority is real as to innocent third persons dealing in good faith with such officers or agents.

Note: It requires presentation of evidence of similar acts executed either in its favor or in favor of other parties. It is not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the corporation (People’s Aircargo and Warehousing Co. Inc v. Court of Appeals and Stefani Saño, G.R. No. 117847, 7 October 1998)⁹.

When the officers or agents of a corporation exceed their powers in entering into contracts or doing other acts, the corporation, when it has knowledge thereof, must promptly disaffirm the contract or act and must not allow the other party or third persons to act in the belief that it was authorized or has been ratified. If it acquiesces, with knowledge of the facts, or fails to disaffirm, ratification will be implied or else it will be estopped to deny ratification (Premiere Development Bank v. Court of Appeals, G.R. No. 159352, 14 April 2004)¹⁰.

Unlawful detainer is proper only when possession was initially lawful and has legally expired; it is not the forum for litigating the validity of contracts or agency authority (Quesada v. Vardeleon, G.R. No. 207500, 14 November 2016)¹¹.

Doctrine of Ratification or Estoppel

The corporation may ratify the unauthorized acts of its corporate officer. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. Ratification may be express or inferred from conduct showing the corporation’s informed approval, including knowing acceptance of benefits. In Yasuma v. Heirs of Cecilio S. De Villa and East Cordillera Mining Corporation, the unauthorized loan and mortgage did not bind the corporation¹². But illegal acts cannot be ratified.