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7. Atrium Management v.

CA 353 SCRA 23
FACTS: 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. Henrys
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 Leons 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
ISSUE: Whether De Leons 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:

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


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;


He agrees to hold himself personally and solidarily liable with the

corporation; or


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. Henrys 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).

8. Pirovano v. Dela Rama 96 PHIL 360

FACTS: Plaintiffs herein are the minor children of the late Enrico Pirovano
represented by their mother and judicial guardian Estefania R. Pirovano. They
seek to enforce certain resolutions adopted by the Board of Directors and
stockholders of the defendant company giving to said minor children of the
proceeds of the insurance policies taken on the life of their deceased father
Enrico Pirovano with the company as beneficiary. Defendant is a corporation
duly organized in accordance with law with an authorized capital of
P500,000, divided into 5,000 shares, with a par value of P100 each share.
The stockholders were: Esteban de la Rama, 1,800 shares, Leonor de la
Rama, 100 shares, Estefania de la Rama, 100 shares, and Eliseo Hervas,
Tomas Concepcion, Antonio G. Juanco, and Gaudencio Volasote with 5 shares
each. Leonor and Estefania are daughters of Don Esteban, while the rest his
employees. Estefania de la Rama was married to the late Enrico Pirovano and
to them four children were born who are the plaintiffs in this case. Enrico
Pirovano became the president of the defendant company and under his
management the company grew and progressed until it became a multimillion corporation by the time Pirovano was executed by the Japanese
during the occupation.
In the meantime, Don Esteban de la Rama, who practically owned and
controlled the stock of the defendant corporation, distributed his
shareholding among his five daughters. One of the daughters, Estefania, was
married to Enrico Pirovano. Meanwhile, a grant was made in favour of the
Pirovano children which constitutes the proceeds of the insurance policies
taken on his life by the defendant company. Out of the proceeds of these
policies the sum of P400,000 be set aside for the minor children of the
deceased, said sum of money to be convertible into 4,000 shares of the
stock of the Company, at par, or 1,000 shares for each child. However,
members of the family and Don Esteban did not realize that they would be
actually giving to the Pirovano children more than what they intended to
give. If the Pirovano children would be given shares of stock in lieu of the
amount to be donated, the voting strength of the five daughters of Don
Esteban in the company would be adversely affected in the sense that Mrs.
Pirovano would have a voting power twice as much as that of her sisters.

The Board of Directors of the De la Rama company, as a consequence of the

change of attitude of Don Esteban, adopted a resolution changing the form
of the donation to the Pirovano children from a donation of 4,000 shares of
stock as originally planned into a renunciation in favor of the children of all
the company's "right, title, and interest as beneficiary in and to the proceeds
of the abovementioned life insurance policies", subject to the express
condition that said proceeds should be retained by the company as a loan.
On March 8, 1951, at a stockholders' meeting convened and majority of the
stockholders' voted to revoke the resolution approving the donation to the
Pirovano children.
ISSUE: Whether the said resolution was an ultra vires act?
HELD: No. The grant or donation in question is remunerative in nature and
was given in consideration of the services rendered by the heirs father to
the corporation. The donation has already been perfected such that the
corporation could no loner rescind it. It was embodied in a Board Resolution.
Representatives of the corporation and even its creditors as the NDC have
given their concurrence. The resolution was actually carried out when the
corporation and Estefania entered into an agreement that the proceeds will
be entered as a loan. Estefania accepted the donation and such was
recorded by the corporation. The Board of Directors approved Estefanias
purchase of the house in New York. Company stockholders formally ratified
the donation.
The donation was a corporate act carried out by the corporation not only
with the sanction of the Board of Directors but also of its stockholders. The
donation has reached a stage of perfection which is valid and binding upon
the corporation and cannot be rescinded unless there exists legal grounds for
doing so. The SEC opinion nor the subsequent Board Resolution are not
sufficient reasons to nullify the donation.
The donation is also not an ultra vires act. The corporation was given broad
and unlimited powers to carry out the purpose for which it was organized
which includes the power to (1) invest and deal with corporate money not
immediately required in such manner as from time to time may be
determined (2) aid in any other manner to any person, association or
corporation of which any obligation is held by this corporation. The donation
undoubtedly comes within the scope of this broad power.
An ultra vires act is (1) an act contrary to law, morals, or public order or
contravene some rules of public policy or duty. It cannot acquire validity by
performance, ratification, estoppel. It is essentially void (2) those within the
scope of the Articles of Incorporation and not always illegal. It is merely
voidable and may become binding and enforceable when ratified by

Since it is not contended that the donation is illegal or contrary to any of the
expressed provisions of the Articles of Incorporation nor prejudicial to the
creditors of the corporation, said donation even if ultra vires is not void and if
voidable, its infirmity has been cured by ratification and subsequent acts of
the corporation. The corporation is now estopped or prevented from
contesting the validity of the donation. To allow the corporation to undo what
it has done would be most unfair and contravene the well-settled doctrine
that the defense of ultra vires cannot be se up or availed of in any completed
NOTE: The ratification of the stockholders of the donation made is the key in
this case. Because such ratification is meant to protect the contractual
relationship or interest of stockholders