by the corporation
GR: Management contract shall be entered into for a period not longer than 5 years for any one term.
XPN: In cases of service contracts or operating agreements which relate to the exploitation, development, exploration or utilization of natural resources, it may be entered for such periods as may be provided by the pertinent laws or regulations.
ULTRA VIRES ACTS
Ultra vires act
An ultra vires act refers to an act outside or beyond express, implied and incidental corporate powers. The concept also includes those acts that may ostensibly be within such powers but are, by general or special laws, either proscribed or declared illegal
(Rural Bank of Milaor v Ocefemia, G.R. No. 137686, February 8, 2000).
Types of UVA
1. Acts done beyond the powers of the corporation (through BOD)
2. Ultra vires acts by corporate officers
3. Acts or contracts which are per se illegal as being contrary to law.
Applicability of ultra vires doctrine
Ultra vires acts by reason of lack of authority v. Ultra
vires acts by reason of illegality (illegal acts)
Instances when the act of the officers bind the corporation
1. If it is provided in the by-laws 2. If authorized by the board
3. Under the doctrine of apparent authority 4. When the act was 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 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.
Instance when the corporation is estopped to deny ratification of contracts or acts entered by its officers or agents
Generally, when the corporation has knowledge that its officers or agents exceed their power, it must promptly disaffirm the contract or act, and allow the other party or third person to act in the belief that it was authorized or has been ratified. Otherwise, if it acquiesces, with knowledge of the facts, or if it fails to disaffirm, ratification will be implied (Premiere
Development Bank vs. CA, G.R. No. 159352, Apr. 14, 2004).
Q: Five (5) parcels of land subject of this case were originally owned by Juanita Arellano Ocfemia and Felicisimo Ocfemia. During their lifetime,the said five (5) parcels of land and two (2) others were mortgaged to Rural Bank of Milaor (RBM). The spouses Felicisimo and Juanita were not able to redeem the mortgaged properties and so the mortgage was foreclosed and thereafter ownership thereof was transferred to RBM. Out of the seven (7) parcels that were foreclosed, five (5) of them are in the possession of the the grandchildren of the spouses Felicisimo and Juanita because these five (5) parcels of land were sold by RBM bank to the children of the spoues. The five (5) parcels of land have not been, however transferred in the name of the children of the spouses after they were sold because according to the Assessor's Office the five (5) parcels of land, subject of the sale, cannot be transferred in the name of the buyers as there is a need to have the document of sale registered with the Register of Deeds (RD). In view of the foregoing, Marife, the grandchild of the spouses went to the RD with the Deed of Sale in order to have the same registered. The RD however, informed her that the document of sale cannot be registered without a board resolution of RBM. Marife went to the bank and requested the for a board resolution so that the property can be transferred to the name of Renato Ocfemia. RBM refused her request for a board resolution and made many alibis. After some time, she was told that the resolution of the board would not be released because the RBM had no records from the old manager. May the board of directors of BASIS ULTRA VIRES ACT ILLEGAL ACTS
Lawfulness
Not necessarily unlawful, but outside
the powers of the corporation
Unlawful; against law, morals, public
policy, and public order
Ratification Can be ratified Cannot be ratified
Binding effect
Can bind the parties if wholly or partly
executed
Cannot bind the parties
a rural banking corporation be compelled to confirm a deed of absolute sale of real property owned by the corporation which deed of sale was executed by the bank manager without prior authority of the board of directors of the rural banking corporation? A: Yes. The corporation may be compelled. A bank is liable to innocent third persons where representation is made in the course of its normal business by an agent like the bank manager, even though such agent is abusing her authority. Clearly, persons dealing with her could not be blamed for believing that she was authorized to transact business for and on behalf of the bank. The bank is estopped from questioning the authority of the bank manager to enter into the contract of sale. 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. Unquestionably, the bank has authorized its manager to enter into the Deed of Sale. Accordingly, it has a clear legal duty to issue the board resolution sought by respondent's. Having authorized her to sell the property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use (Rural Bank of Milaor
(Camarines Sur) v. Francisca Ocfemia, et al., G.R. No. 137686, February 8, 2000).
Q: The spouses Vaca executed REM in favor of Associated Bank over their parcel of residential land and the house constructed thereon. For failure of the spouses Vaca to pay their obligation, the subject property was sold at public auction with Associated Bank as the highest bidder. The Transfer Certificate of Title in the name of spouses Vaca, was cancelled and a new one was issued in the name of the Associated Bank. The spouses Vaca, however, commenced an action for the nullification of the real estate mortgage and the foreclosure sale. Associated Bank, on the other hand, filed a petition for the issuance of a writ of possession which was denied by the RTC. Associated Bank, thereafter, obtained a favorable judgment when the CA granted its petition but the spouses Vaca questioned the CA decision. During the pendency of the cases, Associated Bank advertised the property for sale to interested buyers. Rafael and Monaliza Pronstroller bought the same. In view of the pendency of the case between the spouses Vaca and Associated Bank involving the property, Spouses Pronstroller requested that the balance of the purchase price be made payable only upon service
on them of a final decision or resolution of this Court affirming Associated Bank’s right to possess the property. After they made the request and after the payment deadline had lapsed, Spouses Pronstroller and Atty. Soluta, acting for the Associated Bank, executed another Letter-Agreement allowing the former to pay the balance of the purchase price upon receipt of a final order from this Court (in the Vaca case) and/or the delivery of the property to them free from occupants. Is the Associated Bank bound by the Letter-Agreement signed by Atty. Soluta under the doctrine of apparent authority?
A: Yes. The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Apparent authority is derived not merely from practice. Its existence may be ascertained through 1) 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 2)the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances, wherein the power was exercised without any objection from its board or shareholders. Undoubtedly, Associated Bank had previously allowed Atty. Soluta to enter into the first agreement without a board resolution expressly authorizing him; thus, it had clothed him with apparent authority to modify the same via the second letter-agreement. 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 (Associated Bank v. Spouses Rafael and
Monaliza Pronstroller, G.R. No. 148444, July 14, 2008).
Spouses Maglasang obtained a loan from PCRB. To secure the payment of the subject loan, a REM was executed. Before the subject loan became due, the spouses Maglasang asked PCRB’s permission to sell the subject properties. They likewise requested that the subject properties be released from the mortgage since the two other loans were adequately secured by other mortgages. The spouses Maglasang claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request, hence, spouses Maglasang sold to Violeta Banate the subject properties. The spouses Magsalangused the amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the owner’s duplicate