Commercial Law Review | Divina | 2nd Sem AY 2014-2015 |Page
Atrium Management Corp. vs. CA
February 28, 2001
Pardo, J.
Oswald P. Imbat
SUMMARY: Hi-Cement, through its corporate signatories, issued checks to
secure a loan which was offered by E.T. Henry. The loan, however, did not
push through. In any case, E.T. Henry endorsed the checks to Atrium. Upon
presentment for payment, the checks were dishonored. Atrium sued for
payment. The RTC held the corporate signatories, E.T. Henry, and Hi-
Cement solidarily liable. The CA absolved Hi-Cement on the ground that
the issuance of the checks was an ultra vires act. The SC ruled that the
issuance was not an ultra vires act. However, since Atrium is not a holder in
due course, its right to recover is subject to defenses such as absence or
failure of consideration.
DOCTRINE: The act of issuing the checks was well within the ambit of a
valid corporate act, for it was for securing a loan to finance the activities of
the corporation, hence, not an ultra vires act.
FACTS:
1. Hi-Cement Corporation (Hi-Cement) through its corporate signatories,
Lourdes M. de Leon, treasurer, and the late Antonio de las Alas, Chairman,
issued 4 checks in favor of E.T. Henry and Co. Inc. (E.T. Henry), as payee.
a. E.T. Henry and Co., Inc., in turn, endorsed the checks to Atrium
Management Corp. for valuable consideration.
b. Upon presentment for payment, the drawee bank dishonored all four
checks for the common reason “payment stopped.”
2. Atrium instituted this action after its demand for payment of the value of
the checks was denied. Carlos Syquia, witness for Atrium, testified that:
a. E.T. Henry approached Atrium for financial assistance, offering to
discount the checks.
b. Atrium agreed, on the condition that Hi-Cement will confirm that the
checks were in payment of petroleum products which E.T. Henry
delivered to Hi-Cement.
c. De Leon so confirmed.
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3. Erlinda Yap, witness for Hi-Cement, testified that the checks were issued
to secure a loan which E.T. Henry offered to extend to Hi-Cement. The loan,
however, did not push through.
4. The RTC of Manila ordered de Leon, her husband, E.T. Henry and Co., Inc.
and Hi-Cement, to pay petitioner Atrium, jointly and severally.
5. The CA absolved Hi-Cement, on the ground that de Leon was not
authorized to issue the subject checks in favor of E.T. Henry, Inc. and the
issuance thereof constituted ultra vires acts.
ISSUES/RULINGS:
1. Was the issuance of the checks an ultra vires act? No.
2. May de Leon be held personally liable? Yes.
3. Is Atrium a holder in due course? No.
RATIO:
1. The issuance of the checks was well within the ambit of a valid corporate
act, for it was for securing a loan to finance the activities of the
corporation, hence, not an ultra vires act.
a. The checks were issued to secure a loan from E.T. Henry, not as
payment of the cost of hydro oil.
b. While Hi-Cement argues that the checks were issued without
consideration and that Lourdes and E.T. Henry engaged in a “kiting
operation” to raise funds for E.T. Henry, there is no sufficient evidence
to support this contention.
c. Lourdes M. de Leon is the treasurer of the corporation and is
authorized to sign checks for the corporation. At the time of the
issuance of the checks, there were sufficient funds in the bank to cover
payment of the amount of P2 million pesos.
d. An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law.
e. The term “ultra vires” is distinguished from an illegal act for the former
is merely voidable which may be enforced by performance, ratification,
or estoppel, while the latter is void and cannot be validated.
2. De Leon is personally liable, for she was negligent when she confirmed the
checks as payment for hydro oil, knowing that the checks were strictly
endorsed for deposit only to the E.T. Henry’s account and not to be further
negotiated. Personal liability of a corporate director, trustee or officer
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along (although not necessarily) with the corporation may so validly

attach, as a rule, only when:
a. He assents (i) to a patently unlawful act of the corporation, or (ii) for
bad faith or gross negligence in directing its affairs, or (iii) for conflict of
interest, resulting in damages to the corporation, its stockholders or
other persons;
b. 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;
c. He agrees to hold himself personally and solidarily liable with the
corporation; or
d. He is made, by a specific provision of law, to personally answer for his
corporate action.
3. Atrium is not a holder in due course, because it knew that the checks were
crossed checks and specifically endorsed to payee’s account only.
a. A holder in due course is a holder who has taken the instrument under
the following conditions: (i) That it is complete and regular upon its
face; (ii) That he became the holder of it before it was overdue, and
without notice that it had been previously dishonored, if such was the
fact; (iii) That he took it in good faith and for value; (iv) That at the time
it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.
b. Nevertheless, Atrium may recover, but subject to defenses as if the
checks were non-negotiable, such as absence or failure of consideration
[which is why it cannot recover from Hi-Cement?].