Power of Board of Directors to discipline members; incidental powers
The fact alone that neither the articles of incorporation nor the bylaws of a corporation granted its Board of Directors a certain power or authority does necessarily not make the Board's action ultra vires.
In the case of Magallanes Watercraft v. Auguis,[1] the Supreme Court upheld the authority of the Board of Directors to discipline its members, despite the lack of provision thereof in the articles of incorporation or in the bylaws. In that case, two members of the Board of Trustees were suspended because of their refusal to pay their membership dues and berthing fees because of their pending oral complaint and demand for financial audit of the association funds. According to the Supreme Court, the suspension of the rights and privileges of the two cannot be considered ultra vires because a corporation has: (1) express powers, which are bestowed upon by law or its articles of incorporation; and (2) necessary or incidental powers to the exercise of those expressly conferred. It is only when an act is done which is not under a corporation's express or necessary or incidental powers when it can be said to be an ultra vires act.[2]
In National Power Corporation v. Vera,[3] the Supreme Court stressed that an act might be considered within corporate powers, even if it was not among the express powers, if the same served the corporate ends, to wit:
For if that act is one which is lawful in itself and not otherwise prohibited, and is done for the purpose of serving corporate ends, and reasonably contributes to the promotion of those ends in a substantial and not in a remote and fanciful sense, it may be fairly considered within the corporation's charter powers.
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 361] 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. [Emphasis Supplied]
In University of Mindanao v. Bangko Sentral ng Pilipinas,[4] the Court wrote that corporations were not limited to the express powers enumerated in their charters, but might also perform powers necessary or incidental thereto, to wit:
A corporation may exercise its powers only within those definitions. Corporate acts that are outside those express definitions under the law or articles of incorporation or those "committed outside the object for which a corporation is created" are ultra vires.
The only exception to this rule is when acts are necessary and incidental to carry out a corporation's purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation's articles of incorporation. xxx
x x x x
Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc. stated the test to determine if a corporate act is in accordance with its purposes:
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. [Emphases Supplied; citations omitted]
Based on the foregoing, MWAI can properly impose sanctions on Auguis and Basnig for being delinquent members considering that the payment of membership dues enables MWAI to discharge its duties and functions enumerated under its charter. Moreover, respondents were obligated by the by-laws of the association to pay said dues. The suspension of their rights and privileges is not an ultra vires act as it is reasonably necessary or proper in order to further the interest and welfare of MWAI. Also, the imposition of the temporary ban on the use of MWAI's berthing facilities until Auguis and Basnig have paid their outstanding obligations was a reasonable measure that the former could undertake to ensure the prompt payment of its membership dues.[5] Otherwise, MWAI will be rendered inutile as it will have no means of ensuring that its members will promptly settle their obligations. It will be exposed to deleterious consequences as it will be unable to continue with its operations if the members continue to be delinquent in the payment of their obligations, without fear of possible sanctions.
[1] https://www.projectjurisprudence.com/2020/01/gr-no-211485-may-30-2016.html.
[2] G.R. Nos. 194964-65, January 11, 2016.
[3] 252 Phil. 747 (1989).
[4] G.R. Nos. 194964-65, January 11, 2016.
[5] Twin Towers Condominium Corporation v. CA, 46 Phil. 280 (2003).