Atrium Management Corporation v. Court of Appeals, G.R. No.

109491,
February 28, 2001.
Facts:
Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M.
de Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks in
favor of E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn,
endorsed the four checks to Atrium for valuable consideration. Enrique Tan of
E.T. Henry approached Atrium for financial assistance, offering to discount four
RCBC checks in the total amount of P2 million, issued by Hi-Cement in favor of
E.T. Henry. Atrium agreed to discount the checks, provided it be allowed to
confirm with Hi-Cement the fact that the checks represented payment for
petroleum products which E.T. Henry delivered to Hi-Cement. Upon presentment
for payment, the drawee bank dishonored all four checks for the common reason
“payment stopped”. As a result thereof, Atrium filed an action for collection of the
proceeds of 4 PDC in the total amount of 2M with RTC Manila. Judgment was
rendered in favor of Atrium ordering Lourdes and Rafael de Leon, E.T. Henry and
Co., and Hi-Cement to pay Atrium the said amount plus interest and attorneys
fees. CA absolved Hi-cement Corporation from liability. It also ruled that since
Lourdes was not authorized to issue the subjects checks in favor of E.T. Henry
Inc., the said act was ultra vires.
Issue: Whether the issuance of the questioned checks was an ultra vires act;
Ruling: Yes.
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. 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.
Personal liability of a corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a rule, only when:
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, Lourdes M. de Leon and Antonio de las Alas as treasurer and
Chairman of Hi-Cement were authorized to issue the checks. However, Ms. de
Leon was negligent when she signed the confirmation letter requested by Mr.
Yap of Atrium and Mr. Henry of E.T. Henry for the rediscounting of the crossed
checks issued in favor of E.T. Henry. She was aware that the checks were strictly
endorsed for deposit only to the payee’s account and not to be further
negotiated. What is more, the confirmation letter contained a clause that was not
true, that is, “that the checks issued to E.T. Henry were in payment of Hydro oil
bought by Hi-Cement from E.T. Henry”. Her negligence resulted in damage to the
corporation. Hence, Ms. de Leon may be held personally liable therefor
 Atrium Management Corporation
vs Court of Appeals
February 4, 2013

353 SCRA 23 – Business Organization – 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).