Atrium Management Corporation vs Court of Appeals

written by Howard

G.R. No. 109491 / G.R. No. 121794 – 405 Phil. 461 – 353 SCRA 23 – Mercantile Law –  Corporation Law – Ultra Vires Act – Liability of Corporate Officers

In 1981, Hi-Cement Corporation through Lourdes De Leon (its Treasurer) and Antonio De Las Alas (its Chairman, now deceased) issued four postdated checks to E.T. Henry and Co. The checks amount to P2 million. The checks are crossed checks and are only made payable to E.T. Henry’s account. However, E.T. Henry still indorsed the checks to Atrium Management Corporation (AMC). AMC then made sure that the checks were validly issued by requesting E.T. Henry to get some confirmation from Atrium. Interestingly, De Leon confirmed the checks and advised that the checks are okay to be rediscounted by AMC notwithstanding the fact that the checks are crossed checks payable to no other accounts but that of E.T. Henry. So when AMC presented the check, it was dishonored because Hi-Cement stopped payment. Eventually, AMC sued Hi-Cement, E.T. Henry, and De Leon. The trial court ruled in favor of AMC and made all the respondents liable.

On appeal, Hi-Cement averred that De Leon’s act in signing the check was ultra vires hence  De Leon should be personally liable for the check. De Leon, on the other hand, insisted that the checks were authorized by the corporation.

ISSUE: Whether or not De Leon’s act of signing the check constitutes an ultra vires act hence making her personally liable.

HELD: No, the act is not ultra vires but De Leon is still personally liable. The act is not ultra vires because the act of issuing the checks was well within the ambit of a valid corporate act. De Leon as treasurer is authorized to sign checks. When the checks were issued, Hi-Cement has sufficient funds to cover the P2 million.

As a rule, there are four instances that will make a corporate director, trustee or officer along (although not necessarily) with the corporation personally liable to certain obligations. They are:

  1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;
  2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto;
  3. He agrees to hold himself personally and solidarily liable with the corporation; or
  4. He is made, by a specific provision of law, to personally answer for his corporate action.

In the case at bar, De Leon is negligent. She was aware that the checks were only payable to E.T. Henry’s account yet she sent a confirmation to Atrium to the effect that the checks can be negotiated to them (Atrium) by E.T. Henry. Therefore, she may be held personally liable along with E.T. Henry (but not with Hi-Cement where she is an officer).

Read full text.