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. 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 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; or4. 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).

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 multi-million 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 Estefania’s 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 stockholders.

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 transaction.

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