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the amount of P515,493.

89 for completed and


delivered housing units and land
development. However, the parties eventually
CASE #:1 arrived at an amicable settlement of their
differences, which was embodied in a
Memorandum Agreement executed by HCCC and
AFRDC on July 21, 1978. Under the agreement, the
[G. R. No. 116320. November 29, 1999] parties stipulated that HCCC had turned over 83
housing units which have been accepted and paid
for by the GSIS.The GSIS acknowledged that it still
ADALIA FRANCISCO, petitioner, owed HCCC P520,177.50 representing incomplete
construction of housing units, incomplete land
vs. COURT OF APPEALS ,
development and 5% retention, which amount will
HERBY COMMERCIAL & be discharged when the defects and deficiencies are
CONSTRUCTION finally completed by HCCC. It was also provided
CORPORATION AND JAIME C. that HCCC was indebted to AFRDC in the amount
ONG, respondents. of P180,234.91 which the former agreed would be
paid out of the proceeds from the 40 housing units
DECISION still to be turned over by HCCC or from any amount
due to HCCC from the GSIS. Consequently, the
GONZAGA_REYES, J.: trial court dismissed the case upon the filing by the
parties of a joint motion to dismiss.
Assailed in this petition for review
on certiorari is the decision[1] of the Court of Sometime in 1979, after an examination of the
Appeals affirming the decision[2] rendered by records of the GSIS, Ong discovered that Diaz and
Branch 168 of the Regional Trial Court of Pasig in Francisco had executed and signed seven
Civil Case No. 35231 in favor of private checks[4], of various dates and amounts, drawn
respondents. against the IBAA and payable to HCCC for
completed and delivered work under the contract.
The controversy before this Court finds its Ong, however, claims that these checks were never
origins in a Land Development and Construction delivered to HCCC. Upon inquiry with Diaz, Ong
Contract which was entered into on June 23, 1977 learned that the GSIS gave Francisco custody of the
by A. Francisco Realty & Development Corporation checks since she promised that she would deliver
(AFRDC), of which petitioner Adalia Francisco the same to HCCC. Instead, Francisco forged the
(Francisco) is the president, and private respondent signature of Ong, without his knowledge or consent,
Herby Commercial & Construction Corporation at the dorsal portion of the said checks to make it
(HCCC), represented by its President and General appear that HCCC had indorsed the checks;
Manager private respondent Jaime C. Ong (Ong), Francisco then indorsed the checks for a second
pursuant to a housing project of AFRDC at San Jose time by signing her name at the back of the checks
del Monte, Bulacan, financed by the Government and deposited the checks in her IBAA savings
Service Insurance System (GSIS). Under the account. IBAA credited Franciscos account with the
contract, HCCC agreed to undertake the amount of the checks and the latter withdrew the
construction of 35 housing units and the amount so credited.
development of 35 hectares of land. The payment of
HCCC for its services was on a turn-key basis, that On June 7, 1979, Ong filed complaints with the
is, HCCC was to be paid on the basis of the office of the city fiscal of Quezon City, charging
completed houses and developed lands delivered to Francisco with estafa thru falsification of
and accepted by AFRDC and the GSIS. To facilitate commercial documents. Francisco denied having
payment, AFRDC executed a Deed of Assignment forged Ongs signature on the checks, claiming that
in favor of HCCC to enable the latter to collect Ong himself indorsed the seven checks in behalf of
payments directly from the GSIS. Furthermore, the HCCC and delivered the same to Francisco in
GSIS and AFRDC put up an Executive Committee payment of the loans extended by Francisco to
Account with the Insular Bank of Asia & America HCCC. According to Francisco, she agreed to grant
(IBAA) in the amount of P4,000,000.00 from which HCCC the loans in the total amount of P585,000.00
checks would be issued and co-signed by petitioner and covered by eighteen promissory notes in order
Francisco and the GSIS Vice-President Armando to obviate the risk of the non-completion of the
Diaz (Diaz). project. As a means of repayment, Ong allegedly
issued a Certification authorizing Francisco to
On February 10, 1978, HCCC filed a collect HCCCs receivables from the
complaint[3] with the Regional Trial Court of GSIS. Assistant City Fiscal Ramon M. Gerona gave
Quezon City against Francisco, AFRDC and the credence to Franciscos claims and accordingly,
GSIS for the collection of the unpaid balance under dismissed the complaints, which dismissal was
the Land Development and Construction Contract in
affirmed by the Minister of Justice in a resolution their existence, that fact having been effectively
issued on June 5, 1981. concealed by Francisco, until private respondents
acquired knowledge of Franciscos misdeeds in
The present case was brought by private
1979.
respondents on November 19, 1979 against
Francisco and IBAA for the recovery of IBAA was held liable to private respondents for
P370,475.00, representing the total value of the having honored the checks despite such obvious
seven checks, and for damages, attorneys fees, irregularities as the lack of initials to validate the
expenses of litigation and costs. After trial on the alterations made on the check, the absence of the
merits, the trial court rendered its decision in favor signature of a co-signatory in the corporate checks
of private respondents, the dispositive portion of of HCCC and the deposit of the checks on a second
which provides - indorsement in the savings account of
Francisco. However, the trial court allowed IBAA
WHEREFORE, premises considered, recourse against Francisco, who was ordered to
judgment is hereby rendered in favor of the reimburse the IBAA for any sums it shall have to
plaintiffs and against the defendants pay to private respondents.[5]
INSULAR BANK OF ASIA & AMERICA Both Francisco and IBAA appealed the trial
and ATTY. ADALIA FRANCISCO, to courts decision, but the Court of Appeals dismissed
jointly and severally pay the plaintiffs the IBAAs appeal for its failure to file its brief within
amount of P370.475.00 plus interest thereon the 45-day extension granted by the appellate court.
IBAAs motion for reconsideration and petition for
at the rate of 12% per annum from the date of
review on certiorari filed with this Court were also
the filing of the complaint until the full similarly denied. On November 21, 1989, IBAA
amount is paid; moral damages to plaintiff and HCCC entered into a Compromise Agreement
Jaime Ong in the sum of P50,000.00; which was approved by the trial court, wherein
exemplary damages of P50,000.00; litigation HCCC acknowledged receipt of the amount of
expenses of P5,000.00; and attorneys fees of P370,475.00 in full satisfaction of its claims against
P50,000.00. IBAA, without prejudice to the right of the latter to
pursue its claims against Francisco.
With respect to the cross-claim of the On June 29, 1992, the Court of Appeals
defendant IBAA against its co-defendant Atty. affirmed the trial courts ruling, hence this petition
Adalia Francisco, the latter is ordered to for review on certiorari filed by petitioner,
reimburse the former for the sums that the assigning the following errors to the appealed
Bank shall pay to the plaintiff on the forged decision
checks including the interests paid thereon.
1. The respondent Court of Appeals erred in
Further, the defendants are ordered to pay the concluding that private respondents did not
costs. owe Petitioner the sum covered by the
Promissory Notes Exh.2-2-A-2-P
Based upon the findings of handwriting experts (FRANCISCO). Such conclusion was based
from the National Bureau of Investigation (NBI), mainly on conjectures, surmises and
the trial court held that Francisco had indeed forged speculation contrary to the unrebutted
the signature of Ong to make it appear that he had pleadings and evidence presented by
indorsed the checks. Also, the court ruled that there petitioner.
were no loans extended, reasoning that it was
unbelievable that HCCC was experiencing financial
2. The respondent Court of Appeals erred in
difficulties so as to compel it to obtain the loans
from AFRDC in view of the fact that the GSIS had holding that Petitioner falsified the signature
issued checks in favor of HCCC at about the same of private respondent ONG on the checks in
time that the alleged advances were made. The trial question without any authority therefor which
court stated that it was plausible that Francisco is patently contradictory to the unrebutted
concealed the fact of issuance of the checks from pleading and evidence that petitioner was
private respondents in order to make it appear as if expressly authorized by respondent HERBY
she were accommodating private respondents, when thru ONG to collect all receivables of
in truth she was lending HCCC its own money.
HERBY from GSIS to pay the loans extended
With regards to the Memorandum Agreement to them. (Exhibit 3).
entered into between AFRDC and HCCC in Civil
Case No. Q-24628, the trial court held that the same 3. That respondent Court of Appeals erred in
did not make any mention of the forged checks holding that the seven checks in question were
since private respondents were as of yet unaware of
not taken up in the liquidation and
reconciliation of all outstanding account virtue of the Certification executed by Ong in her
between AFRDC and HERBY as favor giving her the authority to collect all the
acknowledged by the parties in Memorandum receivables of HCCC from the GSIS, including the
questioned checks.[12] Petitioners alternative defense
Agreement (Exh. 5) is a pure conjecture,
must similarly fail. The Negotiable Instruments
surmise and speculation contrary to the Law provides that where any person is under
unrebutted evidence presented by petitioners. obligation to indorse in a representative capacity, he
It is an inference made which is manifestly may indorse in such terms as to negative personal
mistaken. liability.[13] An agent, when so signing, should
indicate that he is merely signing in behalf of the
4. The respondent Court of Appeals erred in principal and must disclose the name of his
affirming the decision of the lower court and principal; otherwise he shall be held personally
dismissing the appeal.[6] liable.[14] Even assuming that Francisco was
authorized by HCCC to sign Ongs name, still,
The pivotal issue in this case is whether or not Francisco did not indorse the instrument in
Francisco forged the signature of Ong on the seven accordance with law. Instead of signing Ongs name,
checks. In this connection, we uphold the lower Francisco should have signed her own name and
courts finding that the subject matter of the present expressly indicated that she was signing as an agent
case, specifically the seven checks, drawn by GSIS of HCCC. Thus, the Certification cannot be used by
and AFRDC, dated between October to November Francisco to validate her act of forgery.
1977, in the total amount of P370,475.00 and Every person who, contrary to law, wilfully or
payable to HCCC, was not included in the negligently causes damage to another, shall
Memorandum Agreement executed by HCCC and indemnify the latter for the same.[15] Due to her
AFRDC in Civil Case No. Q-24628. As observed forgery of Ongs signature which enabled her to
by the trial court, aside from there being absolutely deposit the checks in her own account, Francisco
no mention of the checks in the said agreement, the deprived HCCC of the money due it from the GSIS
amounts represented by said checks could not have pursuant to the Land Development and Construction
been included in the Memorandum Agreement Contract. Thus, we affirm respondent courts award
executed in 1978 because private respondents only of compensatory damages in the amount of
discovered Franciscos acts of forgery in 1979. The P370,475.00, but with a modification as to the
lower courts found that Francisco was able to easily interest rate which shall be six percent (6%) per
conceal from private respondents even the fact of annum, to be computed from the date of the filing
the issuance of the checks since she was a co- of the complaint since the amount of damages was
signatory thereof.[7] We also note that Francisco had alleged in the complaint;[16] however, the rate of
custody of the checks, as proven by the check interest shall be twelve percent (12%) per annum
vouchers bearing her uncontested signature,[8] by from the time the judgment in this case becomes
which she, in effect, acknowledged having received final and executory until its satisfaction and the
the checks intended for HCCC. This contradicts basis for the computation of this twelve percent
Franciscos claims that the checks were issued to (12%) rate of interest shall be the amount of
Ong who delivered them to Francisco already P370,475.00. This is in accordance with the
indorsed.[9] doctrine enunciated in Eastern Shipping Lines, Inc.
As regards the forgery, we concur with the vs. Court of Appeals, et al.,[17] which was reiterated
lower courts finding that Francisco forged the in Philippine National Bank vs. Court of
signature of Ong on the checks to make it appear as Appeals,[18] Philippine Airlines, Inc. vs. Court of
if Ong had indorsed said checks and that, after Appeals[19]and in Keng Hua Paper Products Co.,
indorsing the checks for a second time by signing Inc. vs. Court of Appeals,[20] which provides that -
her name at the back of the checks, Francisco 1. When an obligation is breached, and it
deposited said checks in her savings account with consists in the payment of a sum of money, i.e., a
IBAA. The forgery was satisfactorily established in loan or forbearance of money, the interest due
the trial court upon the strength of the findings of should be that which may have been stipulated in
the NBI handwriting expert.[10] Other than writing. Furthermore, the interest due shall itself
petitioners self-serving denials, there is nothing in earn legal interest from the time it is judicially
the records to rebut the NBIs findings. Well- demanded. In the absence of stipulation, the rate of
entrenched is the rule that findings of trial courts interest shall be 12% per annum to be computed
which are factual in nature, especially when from default, i.e., from judicial or extrajudicial
affirmed by the Court of Appeals, deserve to be demand under and subject to the provisions of
respected and affirmed by the Supreme Court, Article 1169 of the Civil Code.
provided it is supported by substantial evidence on
record,[11] as it is in the case at bench. 2. When an obligation, not constituting a loan
or forbearance of money, is breached, an interest on
Petitioner claims that she was, in any event, the amount of damages awarded may be imposed at
authorized to sign Ongs name on the checks by the discretion of the court at the rate of six percent
(6%) per annum. No interest, however, shall be rates of interest shall be the amount of
adjudged on unliquidated claims or damages except P370,475.00. No pronouncement as to costs.
when or until the demand can be established with
SO ORDERED.
reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the CASE DIGEST
interest shall begin to run from the time the claim is
FACTS:
made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so
 June 23, 1977: Adalia Francisco (Francisco)
reasonably established at the time the demand is
president of A. Francisco Realty & Development
made, the interest shall begin to run only from the
Corporation (AFRDC) and Jaime C. Ong
date the judgment of the court is made (at which
(Ong) President and General Manager of Herby
time the quantification of damages may be deemed
Commercial & Construction Corporation
to have been reasonably ascertained). The actual
(HCCC), entered into a contract where HCCC
base for the computation of legal interest shall, in
agreed to undertake the construction of 35
any case, be on the amount finally adjudged.
housing units and the development of 35
3. When the judgment of the court awarding a hectares of land.
sum of money becomes final and executory, the rate
of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be twelve  HCCC was to be paid on turn-key basis (basis of
percent (12%) per annum from such finality until its the completed houses and developed lands
satisfaction, this interim period being deemed to be delivered to and accepted by AFRDC and the
by then an equivalent to a forbearance of credit. GSIS)

We also sustain the award of exemplary


damages in the amount of P50,000.00. Under  To facilitate payment, AFRDC executed a Deed
Article 2229 of the Civil Code, exemplary damages of Assignment in favor of HCCC to enable the it
are imposed by way of example or correction for to collect payments directly from the GSIS.
the public good, in addition to the moral, temperate,
liquidated or compensatory damages. Considering
 Furthermore, the GSIS and AFRDC put up an
petitioners fraudulent act, we hold that an award of
Executive Committee Account with the Insular
P50,000.00 would be adequate, fair and
Bank of Asia & America (IBAA) of P4M from
reasonable. The grant of exemplary damages
which checks would be issued and co-signed by
justifies the award of attorneys fees in the amount
petitioner Francisco and the GSIS Vice-President
of P50,000.00, and the award of P5,000.00 for
Armando Diaz (Diaz).
litigation expenses.[21]
The appellate courts award of P50,000.00 in
moral damages is warranted. Under Article 2217 of  February 10, 1978: HCCC filed a complaint w/
the Civil Code, moral damages may be granted the RTC against Francisco, AFRDC and the
upon proof of physical suffering, mental anguish, GSIS for the collection of the unpaid balance
fright, serious anxiety, besmirched reputation, under the Land Development and Construction
wounded feelings, moral shock, social humiliation Contract in the amount of P515,493.89 for
and similar injury.[22] Ong testitified that he suffered completed and delivered housing units and land
sleepless nights, embarrassment, humiliation and development.
anxiety upon discovering that the checks due his
company were forged by petitioner and that  Sometime in 1979: Ong discovered that Diaz and
petitioner had filed baseless criminal complaints Francisco had executed and signed 7
against him before the fiscals office of Quezon City checks drawn against the IBAA and payable to
which disrupted HCCCs business operations.[23] HCCC but were never delivered to HCCC
WHEREFORE, we AFFIRM the respondent
courts decision promulgated on June 29, 1992,
 GSIS gave Francisco custody of the checks since
upholding the February 16, 1988 decision of the
she promised that she would deliver the same to
trial court in favor of private respondents, with the
HCCC.
modification that the interest upon the actual
damages awarded shall be at six percent (6%) per
annum, which interest rate shall be computed from  Francisco forged the signature of Ong, without
the time of the filing of the complaint on November his knowledge or consent, at the dorsal portion
19, 1979. However, the interest rate shall be twelve of the said checks to make it appear that HCCC
percent (12%) per annum from the time the had indorsed the checks; Francisco then indorsed
judgment in this case becomes final and executory the checks for a second time by signing her name
and until such amount is fully paid. The basis for at the back of the checks and deposited the
computation of the six percent and twelve percent checks in her IBAA savings account
 An agent, when so signing, should indicate that
he is merely signing in behalf of the principal
 June 7, 1979: Ong filed complaints charging and must disclose the name of his principal;
Francisco with estafa thru falsification of otherwise he shall be held personally liable
commercial documents - dismmised by the
Assistant City Fiscal
 Instead of signing Ongs name, Francisco should
have signed her own name and expressly
 According to Francisco, she agreed to grant indicated that she was signing as an agent of
HCCC the loans in the total amount of P585K HCCC
and covered by 18 promissory notes in order to
obviate the risk of the non-completion of the
project. CASE #:2

 As a means of repayment, Ong allegedly issued a


Certification authorizing Francisco to collect
[G.R. No. 153535. July 28, 2005]
HCCCs receivables from the GSIS

 RTC: favored Ong and against IBAA and


Francisco
SOLIDBANK
CORPORATION, petitioner, vs.
MINDANAO
 November 21, 1989: IBAA and HCCC entered FERROALLOY CORPORATION,
into a Compromise Agreement which was
approved by the trial court, wherein HCCC
Spouses JONG-WON HONG and
acknowledged receipt of the amount of SOO-OK KIM HONG,* TERESITA
P370,475.00 in full satisfaction of its claims CU, and RICARDO P. GUEVARA
against IBAA, without prejudice to the right of and Spouse,** respondents.
IBAA to pursue its claims against Francisco.
DECISION
 CA affirmed RTC PANGANIBAN, J.:

To justify an award for moral and


 Francisco claims that she was, in any event,
authorized to sign Ongs name on the checks by exemplary damages under Articles 19 to
virtue of the Certification executed by Ong in her 21 of the Civil Code (on human relations),
favor giving her the authority to collect all the the claimants must establish the other
receivables of HCCC from the GSIS, including partys malice or bad faith by clear and
the questioned checks. convincing evidence.

ISSUE: W/N Francisco can sign Ongs name on the


checks and it was not forgery The Case

HELD: NO. Before us is a Petition for


 Francisco had custody of the checks, as proven Review[1] under Rule 45 of the Rules of
by the check vouchers bearing her uncontested Court, assailing the December 21, 2001
signature Decision[2] and the May 15, 2002
Resolution[3] of the Court of Appeals (CA)
 Francisco forged the signature of Ong on the in CA-GR CV No. 67482. The CA
checks to make it appear as if Ong had indorsed disposed as follows:
said checks
IN THE LIGHT OF ALL THE
FOREGOING, the appeal is DISMISSED.
 The Negotiable Instruments Law provides that The Decision appealed from
where any person is under obligation to indorse
in a representative capacity, he may indorse in
is AFFIRMED.[4]
such terms as to negative personal liability
The assailed Resolution, on the other
hand, denied petitioners Motion for
Reconsideration.
The Facts through Jong-Won Hong and Teresita Cu,
executed a Deed of Assignment in favor of the
The CA narrated the antecedents as Bank covering its rights, title and interest to
follows: the following:

The Maria Cristina Chemical Industries The entire proceeds of drafts drawn under
(MCCI) and three (3) Korean corporations, Irrevocable Letter of Credit No. M-S-041-
namely, the Ssangyong Corporation, the 2002080 opened with The Mitsubishi Bank
Pohang Iron and Steel Company and the Ltd. Tokyo dated June 13, 1991 for the
Dongil Industries Company, Ltd., decided to account of Ssangyong Japan Corporation, 7F.
forge a joint venture and establish a Matsuoka-Tamura-Cho Bldg., 22-10, 5-
corporation, under the name of the Mindanao Chome, Shimbashi, Minato-Ku, Tokyo, Japan
Ferroalloy Corporation (Corporation for up to the extent of US$197,679.00
brevity) with principal offices in Iligan City.
The Corporation likewise executed a Quedan,
Ricardo P. Guevara was the President and
by way of additional security, under which the
Chairman of the Board of Directors of the
Corporation bound and obliged to keep and
Corporation. Jong-Won Hong, the General
hold, in trust for the Bank or its
Manager of Ssangyong Corporation, was the
Order, Ferrosilicon for US$197,679.00. Jong-
Vice-President of the Corporation for Finance,
Won Hong and Teresita Cu affixed their
Marketing and Administration. So was
signatures thereon for the Corporation. The
Teresita R. Cu. On November 26, 1990, the
Corporation, also, through Jong-Won Hong
Board of Directors of the Corporation
and Teresita Cu, executed a Trust Receipt
approved a Resolution authorizing its
Agreement, by way of additional security for
President and Chairman of the Board of
said loan, the Corporation undertaking to hold
Directors or Teresita R. Cu, acting together
in trust, for the Bank, as its property, the
with Jong-Won Hong, to secure an omnibus
following:
line in the aggregate amount
of P30,000,000.00 from the Solidbank x x x. 1. THE MITSUBISHI BANK LTD.,
Tokyo L/C No. M-S-041-
xxxxxxxxx
2002080 for account of
In the meantime, the Corporation started its Ssangyong Japan Corporation,
operations sometime in April, 1991. Its Tokyo, Japan for US$197,679.00
indebtedness ballooned to P200,453,686.69 Ferrosilicon to expire September
compared to its assets of only P65,476,000.00. 20, 1991.
On May 21, 1991, the Corporation secured an
2. SEC QUEDAN NO. 91-476 dated
ordinary time loan from the Solidbank in the
June 26, 1991 covering the
amount of P3,200,000.00. Another ordinary
following:
time loan was granted by the Bank to the
Corporation on May 28, 1991, in the amount Ferrosilicon for US$197,679.00
of P1,800,000.00 or in the total amount
of P5,000,000.00, due on July 15 and 26, However, shortly after the execution of the
1991, respectively. said deeds, the Corporation stopped its
operations. The Corporation failed to pay its
However, the Corporation and the Bank loan availments from the Bank inclusive of
agreed to consolidate and, at the same time, accrued interest. On February 11, 1992, the
restructure the two (2) loan availments, the Bank sent a letter to the Corporation
same payable on September 20, 1991. The demanding payment of its loan availments
Corporation executed Promissory Note No. inclusive of interests due. The Corporation
96-91-00865-6 in favor of the Bank failed to comply with the demand of the Bank.
evidencing its loan in the amount On November 23, 1992, the Bank sent another
of P5,160,000.00, payable on September 20, letter to the [Corporation] demanding
1991. Teresita Cu and Jong-Won Hong payment of its account which, by November
affixed their signatures on the note. To secure 23, 1992, had amounted to P7,283,913.33.
the payment of the said loan, the Corporation,
The Corporation again failed to comply with xxxxxxxxx
the demand of the Bank.
[On their part, respondents] Teresita Cu and
On January 6, 1993, the Bank filed a Ricardo Guevara alleged that [petitioner] had
complaint against the Corporation with the no cause of action against them because: (a)
Regional Trial Court of Makati City, entitled Ricardo Guevara did not sign any of the
and docketed as Solidbank Corporation vs. documents in favor of [petitioner]; (b)
Mindanao Ferroalloy Corporation, Sps. Jong- Teresita Cu signed the Promissory Note, Deed
Won Hong and the Sps. Teresita R. Cu, Civil of Assignment, Trust Receipt and Quedan in
Case No. 93-038 for Sum of Money with a blank and merely as representative and, hence,
plea for the issuance of a writ of preliminary for and in behalf of the Defendant
attachment. x x x Corporation and, hence, was not personally
liable to [petitioner].
xxxxxxxxx
In the interim, the Corporation filed, on June
Under its Amended Complaint, the Plaintiff 20, 1994, a Petition, with the Regional Trial
alleged that it impleaded Ricardo Guevara and Court of Iligan City, for Voluntary
his wife as Defendants because, [among Insolvency x x x.
others]:
xxxxxxxxx
Defendants JONG-WON HONG and
TERESITA CU, are the Vice-Presidents of Appended to the Petition was a list of its
defendant corporation, and also members of creditors, including [petitioner], for the
the companys Board of Directors. They are amount of P8,144,916.05. The Court issued an
impleaded as joint and solidary debtors of Order, on July 12, 1994, finding the Petition
[petitioner] bank having signed the sufficient in form and substance x x x.
Promissory Note, Quedan, and Trust Receipt
agreements with [petitioner], in this case. xxxxxxxxx

xxxxxxxxx In view of said development, the Court issued


an Order, in Civil Case No. 93-038,
[Petitioner] likewise filed a criminal suspending the proceedings as against the
complaint x x x entitled and docketed as Defendant Corporation but ordering the
Solidbank Corporation vs. Ricardo Guevara, proceedings to proceed as against the
Teresita R. Cu and Jong Won Hong x x x for individual defendants x x x.
Violation of P.D. 115. On April 14, 1993, the
investigating Prosecutor issued a Resolution xxxxxxxxx
finding no probable cause for violation of
P.D. 115 against the Respondents as the goods On December 10, 1999, the Court rendered a
covered by the quedan were nonexistent: Decision dismissing the complaint for lack of
cause of action of [petitioner] against the
xxxxxxxxx Spouses Jong-Won Hong, Teresita Cu and the
Spouses Ricardo Guevara, x x x.
In their Answer to the complaint [in the civil
case], the Spouses Jong-Won Hong and Soo- xxxxxxxxx
ok Kim Hong alleged, inter alia, that
[petitioner] had no cause of action against In dismissing the complaint against the
them as: individual [respondents], the Court a
quo found and declared that [petitioner] failed
x x x the clean loan of P5.1 M obtained was a to adduce a morsel of evidence to prove the
corporate undertaking of defendant personal liability of the said [respondents] for
MINFACO executed through its duly the claims of [petitioner] and that the latter
authorized representatives, Ms. Teresita R. Cu impleaded the [respondents], in its complaint
and Mr. Jong-Won Hong, both Vice and amended complaint, solely to put more
Presidents then of MINFACO. x x x. pressure on the Defendant Corporation to pay
its obligations to [petitioner].
[Petitioner] x x x interposed an appeal, from acted merely as officers of the
the Decision of the Court a quo and posed, for corporation, which was the real party in
x x x resolution, the issue of whether or not interest. Respondent Guevara was not
the individual [respondents], are jointly and even a signatory to the Promissory Note,
severally liable to [petitioner] for the loan the Trust Receipt Agreement, the Deed of
availments of the [respondent] Corporation, Assignment or the Quedan; he was
inclusive of accrued interests and penalties. merely authorized to represent Minfaco to
negotiate with and secure the loans from
In the meantime, on motion of [petitioner], the the bank. On the other hand, the CA
Court set aside its Order, dated February 2, noted that Respondents Cu and Hong
1995, suspending the proceedings as against had not signed the above documents as
the [respondent] Corporation. [Petitioner] comakers, but as signatories in their
filed a Motion for Summary Judgment against representative capacities as officers of
the [respondent] Corporation. On February Minfaco.
28, 2000, the Court rendered a Summary
Judgment against the [respondent] Likewise, the CA held that the
Corporation, the decretal portion of which individual respondents were not liable to
reads as follows: petitioner for damages, simply because
(1) they had not received the proceeds of
WHEREFORE, premises considered, this the irrevocable Letter of Credit, which was
Court hereby resolves to give due course to the subject of the Deed of Assignment;
the motion for summary judgment filed by and (2) the goods subject of the Trust
herein [petitioner]. Consequently, judgment is Receipt Agreement had been found to be
hereby rendered in favor of nonexistent. The appellate court took
[Petitioner]SOLIDBANK CORPORATION and judicial notice of the practice of banks and
against [Respondent] MINDANAO financing institutions to investigate,
FERROALLOY CORPORATION, ordering the examine and assess all properties offered
latter to pay the former the amount by borrowers as collaterals, in order to
of P7,086,686.70, representing the determine the feasibility and advisability
outstanding balance of the subject loan as of of granting loans. Before agreeing to the
24 September 1994, plus stipulated interest at consolidation of Minfacos loans, it
the rate of 16% per annum to be computed presumed that petitioner had done its
from the aforesaid date until fully paid homework.
together with an amount equivalent to 12% of As to the award of damages to the
the total amount due each year from 24 individual respondents, the CA upheld the
September 1994 until fully paid. Lastly, said trial courts findings that it was clearly
[respondent] is hereby ordered to pay unfair on petitioners part to have
[petitioner] the amount of P25,000.00 to impleaded the wives of Guevara and
[petitioner] as reasonable attorneys fees as Hong, because the women were not privy
well as cost of litigation.[5] to any of the transactions between
petitioner and Minfaco. Under Articles 19,
In its appeal, petitioner argued that (1) 20 and 2229 of the Civil Code, such
it had adduced the requisite evidence to reckless and wanton act of pressuring
prove the solidary liability of the individual individual respondents to settle the
respondents, and (2) it was not liable for corporations obligations is a ground to
their counterclaims for damages and award moral and exemplary damages, as
attorneys fees. well as attorneys fees.
Hence this Petition.[6]
Ruling of the Court of Appeals
Issues
Affirming the RTC, the appellate court
ruled that the individual respondents were
not solidarily liable with the Mindanao In its Memorandum, petitioner raises
Ferroalloy Corporation, because they had the following issues:
A. Whether or not there is ample evidence on loan documents made them comakers; or
record to support the joint and solidary because they committed fraud and
liability of individual respondents with deception, which justifies the piercing of
Mindanao Ferroalloy Corporation. the corporate veil.

B. In the absence of joint and solidary The first contention hinges on certain
liability[,] will the provision of Article 1208 factual determinations made by the trial
in relation to Article 1207 of the New Civil and the appellate courts. These tribunals
Code providing for joint liability be applicable found that, although he had not signed
to the case at bar. any document in connection with the
subject transaction, Respondent Guevara
C. May bank practices be the proper subject was authorized to represent Minfaco in
of judicial notice under Sec. 1 [of] Rule 129 negotiating for a P30 million loan from
of the Rules of Court. petitioner. As to Cu and Hong, it was
determined, among others, that their
D. Whether or not there is evidence to sustain signatures on the loan documents other
the claim that respondents were impleaded to than the Deed of Assignment were not
apply pressure upon them to pay the prefaced with the word by, and that there
obligations in lieu of MINFACO that is were no other signatures to indicate who
declared insolvent. had signed for and on behalf of Minfaco,
the principal borrower. In the Promissory
E. Whether or not there are sufficient bases Note, they signed above the printed name
for the award of various kinds of and of the corporation -- on the space
substantial amounts in damages including provided for Maker/Borrower, not on that
payment for attorneys fees. provided for Co-maker.
Petitioner has not shown any
F. Whether or not respondents committed exceptional circumstance that sanctions
fraud and misrepresentations and acted in bad the disregard of these findings of fact,
faith. which are thus deemed final and
conclusive upon this Court and may not
G. Whether or not the inclusion of
be reviewed on appeal.[8]
respondents spouses is proper under certain
circumstances and supported by prevailing
jurisprudence.[7] No Personal Liability
for Corporate Deeds
In sum, there are two main questions:
(1) whether the individual respondents
are liable, either jointly or solidarily, with Basic is the principle that a
the Mindanao Ferroalloy Corporation; and corporation is vested by law with a
(2) whether the award of damages to the personality separate and distinct from that
individual respondents is valid and legal. of each person composing[9] or
representing it.[10] Equally fundamental is
the general rule that corporate officers
The Courts Ruling cannot be held personally liable for the
consequences of their acts, for as long as
The Petition is partly meritorious. these are for and on behalf of the
corporation, within the scope of their
authority and in good faith.[11] The
First Issue: separate corporate personality is a shield
Liability of Individual Respondents against the personal liability of corporate
officers, whose acts are properly
attributed to the corporation.[12]
Petitioner argues that the individual
respondents were jointly or solidarily Tramat Mercantile v. Court of
liable with Minfaco, either because their Appeals[13] held thus:
participation in the loan contract and the
Personal liability of a corporate director, appeared on the space provided for
trustee or officer along (although not Maker/Borrower; 2) Respondents Cu and
necessarily) with the corporation may so Hong had only one set of signatures on
validly attach, as a rule, only when the instrument, when there should have
been two, if indeed they had intended to
1. He assents (a) to a patently unlawful act of be bound solidarily -- the first as
the corporation, or (b) for bad faith or gross representatives of the corporation, and
negligence in directing its affairs, or (c) for the second as themselves in their
conflict of interest, resulting in damages to the individual capacities; 3) they did not sign
corporation, its stockholders or other persons; under the spaces provided for Co-maker,
and neither were their addresses
2. He consents to the issuance of watered reflected there; and 4) at the back of the
stocks or who, having knowledge thereof, Promissory Note, they signed above the
does not forthwith file with the corporate words Authorized Representative.
secretary his written objection thereto;

3. He agrees to hold himself personally and Solidary Liability


solidarily liable with the corporation; or Not Lightly Inferred
4. He is made, by a specific provision of law,
to personally answer for his corporate action. Moreover, it is axiomatic that solidary
liability cannot be lightly inferred.[14] Under
Consistent with the foregoing Article 1207 of the Civil Code, there is a
principles, we sustain the CAs ruling that solidary liability only when the obligation
Respondent Guevara was not personally expressly so states, or when the law or
liable for the contracts. First, it is beyond the nature of the obligation requires
cavil that he was duly authorized to act on solidarity. Since solidary liability is not
behalf of the corporation; and that in clearly expressed in the Promissory Note
negotiating the loans with petitioner, he and is not required by law or the nature of
did so in his official capacity. Second, no the obligation in this case, no conclusion
sufficient and specific evidence was of solidary liability can be made.
presented to show that he had acted in Furthermore, nothing supports the
bad faith or gross negligence in that alleged joint liability of the individual
negotiation. Third, he did not hold himself petitioners because, as correctly pointed
personally and solidarily liable with the out by the two lower courts, the evidence
corporation. Neither is there any specific shows that there is only one debtor: the
provision of law making him personally corporation. In a joint obligation, there
answerable for the subject corporate acts. must be at least two debtors, each of
On the other hand, Respondents Cu whom is liable only for a proportionate
and Hong signed the Promissory Note part of the debt; and the creditor is
without the word by preceding their entitled only to a proportionate part of the
signatures, atop the designation credit.[15]
Maker/Borrower and the printed name of Moreover, it is rather late in the day to
the corporation, as follows: raise the alleged joint liability, as this
matter has not been pleaded before the
trial and the appellate courts. Before the
__(Sgd) Cu/Hong__ lower courts, petitioner anchored its claim
(Maker/Borrower) solely on the alleged joint and several (or
MINDANAO FERROALLOY solidary) liability of the individual
respondents. Petitioner must be reminded
While their signatures appear without that an issue cannot be raised for the first
qualification, the inference that they time on appeal, but seasonably in the
signed in their individual capacities is proceedings before the trial court.[16]
negated by the following facts: 1) the So too, the Promissory Note in
name and the address of the corporation question is a negotiable instrument.
Under Section 19 of the Negotiable corporate veil may be pierced when the
Instruments Law, agents or corporation acts as a mere alter ego or
representatives may sign for the principal. business conduit of a person, or when it is
Their authority may be established, as in so organized and controlled and its affairs
other cases of agency. Section 20 of the so conducted as to make it merely an
law provides that a person signing for and instrumentality, agency, conduit or
on behalf of a [disclosed] principal or in a adjunct of another corporation.[20] But to
representative capacity x x x is not liable disregard the separate juridical
on the instrument if he was duly personality of a corporation, the
authorized. wrongdoing must be clearly and
convincingly established; it cannot be
The authority of Respondents Cu and
presumed.[21]
Hong to sign for and on behalf of the
corporation has been amply established Petitioner contends that the
by the Resolution of Minfacos Board of corporation was used to protect the fraud
Directors, stating that Atty. Ricardo P. foisted upon it by the individual
Guevara (President and Chairman), or respondents. It argues that the CA failed
Ms. Teresita R. Cu (Vice President), to consider the following badges of fraud
acting together with Mr. Jong Won Hong and evident bad faith: 1) the individual
(Vice President), be as they are hereby respondents misrepresented the
authorized for and in behalf of the corporation as solvent and financially
Corporation to: 1. Negotiate with and capable of paying its loan; 2) they knew
obtain from (petitioner) the extension of that prices of ferrosilicon were declining in
an omnibus line in the aggregate of P30 the world market when they secured the
million x x x; and 2. Execute and deliver loan in June 1991; 3) not a single centavo
all documentation necessary to was paid for the loan; and 4) the
implement all of the foregoing.[17] corporation suspended its operations
shortly after the loan was granted.[22]
Further, the agreement involved here
is a contract of adhesion, which was Fraud refers to all kinds of deception -
prepared entirely by one party and offered - whether through insidious machination,
to the other on a take it or leave it basis. manipulation, concealment or
Following the general rule, the contract misrepresentation -- that would lead an
must be read against petitioner, because ordinarily prudent person into error after
it was the party that prepared it,[18] more taking the circumstances into
so because a bank is held to high account. In contracts, a fraud known
[23]

standards of care in the conduct of its as dolo causante or causal fraud[24] is


business.[19] basically a deception used by one party
prior to or simultaneous with the contract,
In the totality of the circumstances, we
in order to secure the consent of the
hold that Respondents Cu and Hong
other.[25] Needless to say, the deceit
clearly signed the Note merely as
employed must be serious. In
representatives of Minfaco.
contradistinction, only some particular or
accident of the obligation is referred to by
No Reason to Pierce incidental fraud or dolo incidente,[26] or
the Corporate Veil that which is not serious in character and
without which the other party would have
entered into the contract anyway.[27]
Under certain circumstances, courts
may treat a corporation as a mere Fraud must be established by clear
aggroupment of persons, to whom liability and convincing evidence; mere
will directly attach. The distinct and preponderance of evidence is not
separate corporate personality may be adequate.[28] Bad faith, on the other hand,
disregarded, inter alia, when the imports a dishonest purpose or some
corporate identity is used to defeat public moral obliquity and conscious doing of a
convenience, justify a wrong, protect a wrong, not simply bad judgment or
fraud, or defend a crime. Likewise, the negligence.[29] It is synonymous with
fraud, in that it involves a design to so under Section 2 of the same Rule. The
mislead or deceive another.[30] latter Rule provides that a court, in its
discretion, may take judicial notice of
Unfortunately, petitioner was unable to
matters which are of public knowledge, or
establish clearly and precisely how the
ought to be known to judges because of
alleged fraud was committed. It failed to
their judicial functions.
establish that it was deceived into
granting the loans because of Thus, the Court has taken judicial
respondents misrepresentations and/or notice of the practices of banks and other
insidious actions. Quite the contrary, financial institutions. Precisely, it has
circumstances indicate the weakness of noted that it is their uniform practice,
its submission. before approving a loan, to investigate,
examine and assess would-be borrowers
First, petitioner does not deny that
credit standing or real estate[32] offered as
the P5 million loan represented the
security for the loan applied for.
consolidation of two loans,[31]granted long
before the bank required the individual
respondents to execute the Promissory Second Issue:
Note, Trust Receipt Agreement, Quedan Award of Damages
or Deed of Assignment. Hence, no words,
acts or machinations arising from any of
those instruments could have been used The individual respondents were
by them prior to or simultaneous with the awarded moral and exemplary damages
execution of the contract, or even as as well as attorneys fees under Articles
some accident or particular of the 19 to 21 of the Civil Code, on the basic
obligation. premise that the suit was clearly
malicious and intended merely to harass.
Second, petitioner bank was in a
position to verify for itself the solvency Article 19 of the Civil Code expresses
and trustworthiness of respondent the fundamental principle of law on
corporation. In fact, ordinary business human conduct that a person must, in the
prudence required it to do so before exercise of his rights and in the
granting the multimillion loans. It is of performance of his duties, act with justice,
common knowledge that, as a matter of give every one his due, and observe
practice, banks conduct exhaustive honesty and good faith. Under this basic
investigations of the financial standing of postulate, the exercise of a right, though
an applicant debtor, as well as appraisals legal by itself, must nonetheless be done
of collaterals offered as securities for in accordance with the proper norm.
loans to ensure their prompt and When the right is exercised arbitrarily,
satisfactory payment. To uphold unjustly or excessively and results in
petitioners cry of fraud when it failed to damage to another, a legal wrong is
verify the existence of the goods covered committed for which the wrongdoer must
by the Trust Receipt Agreement and the be held responsible.[33]
Quedan is to condone its negligence. To be liable under the abuse-of-rights
principle, three elements must concur: a)
a legal right or duty, b) its exercise in bad
Judicial Notice faith, and c) the sole intent of prejudicing
of Bank Practices or injuring another.[34] Needless to say,
absence of good faith[35] must be
This point brings us to the alleged sufficiently established.
error of the appellate court in taking
Article 20 makes [e]very person who,
judicial notice of the practice of banks in
contrary to law, willfully or negligently
conducting background checks on
causes damage to another liable for
borrowers and sureties. While a court is
damages. Upon the other hand, held
not mandated to take judicial notice of this
liable for damages under Article 21 is one
practice under Section 1 of Rule 129 of
who willfully causes loss or injury to
the Rules of Court, it nevertheless may do
another in a manner that is contrary to (4) In case of a clearly unfounded civil action
morals, good customs or public policy. or proceeding against the plaintiff;
For damages to be properly awarded (5) Where the defendant acted in gross and
under the above provisions, it is evident bad faith in refusing to satisfy the
necessary to demonstrate by clear and plaintiffs plainly valid, just and demandable
convincing evidence[36] that the action claim;
instituted by petitioner was clearly so
unfounded and untenable as to amount to (6) In actions for legal support;
gross and evident bad faith.[37] To justify
an award of damages for malicious (7) In actions for the recovery of wages of
prosecution, one must prove two household helpers, laborers and skilled
elements: malice or sinister design to vex workers;
or humiliate and want of probable
cause.[38] (8) In actions for indemnity under workmens
Petitioner was proven wrong in compensation and employers liability laws;
impleading Spouses Guevara and Hong.
Beyond that fact, however, respondents (9) In a separate civil action to recover civil
have not established that the suit was liability arising from a crime;
so patently malicious as to warrant the
(10) When at least double judicial costs are
award of damages under the Civil Codes
awarded;
Articles 19 to 21, which are grounded on
malice or bad faith.[39] With the (11) In any other case where the court deems
presumption of law on the side of good it just and equitable that attorneys fees and
faith, and in the absence of adequate expenses of litigation should be recovered.
proof of malice, we find that petitioner
impleaded the spouses because it In the instant case, none of the
honestly believed that the conjugal enumerated grounds for recovery of
partnerships had benefited from the attorneys fees are present.
proceeds of the loan, as stated in their
Complaint and subsequent pleadings. Its WHEREFORE, this Petition
act does not amount to evident bad faith is PARTIALLY GRANTED. The assailed
or malice; hence, an award for damages Decision is AFFIRMED, but the award of
is not proper. The adverse result of an act moral and exemplary damages as well as
per se neither makes the act wrongful nor attorneys fees is DELETED. No costs.
subjects the actor to the payment of SO ORDERED.
damages, because the law could not
CASE DIGEST:
have meant to impose a penalty on the
right to litigate.[40] Solid Bank Corp. vs Mindanao Ferroalloy Corp.
G.R. No. 153535
For the same reason, attorneys fees July 28, 2005
cannot be granted. Article 2208 of the
Civil Code states that in the absence of a Doctrine: It is axiomatic that solidary liability cannot be
lightly inferred. Under Article 1207 of the Civil Code,
stipulation, attorneys fees cannot be
"there is a solidary liability only when the obligation
recovered, except in any of the following expressly so states, or when the law or the nature of the
circumstances: obligation requires solidarity."

(1) When exemplary damages are awarded; Facts: Private respondents herein secured a loan to the
petitioner bank under the name of the respondent
(2) When the defendants act or omission has corporation. In the course of the corporations
compelled the plaintiff to litigate with third operation, it was not able to pay its obligation to the
petitioner and has to stop its operation. Petitioner bank
persons or to incur expenses to protect his
filed an action against the corporation together with its
interest; principal officers for the collection of the loan they
acquired. The RTC ruled in favor of the bank petitioner
(3) In criminal cases of malicious prosecution and ordering the respondent corporation to pay the
against the plaintiff; amount of loan plus interest. On appeal, the CA held the
decision of the RTC and ruled also that the private What is before the Court are separate appeals
respondents were not solidary liable to the petitioner. from the decision of the Court of Appeals,[1] ruling
that Hi-Cement Corporation is not liable for four
Issue: Whether or not principal officers can be held checks amounting to P2 million issued to E.T.
personally liable upon signing the contract of loan Henry and Co. and discounted to Atrium
under the name of the corporation? Management Corporation.

Ruling: Basic is the principle that a corporation is vested On January 3, 1983, Atrium Management
by law with a personality separate and distinct from Corporation filed with the Regional Trial Court,
that of each person composing or representing it. Manila an action for collection of the proceeds of
Equally fundamental is the general rule that corporate four postdated checks in the total amount of P2
officers cannot be held personally liable for the million. Hi-Cement Corporation through its
consequences of their acts, for as long as these are for corporate signatories, petitioner Lourdes M. de
and on behalf of the corporation, within the scope of Leon,[2] treasurer, and the late Antonio de las Alas,
their authority and in good faith. The separate Chairman, issued checks in favor of E.T. Henry and
corporate personality is a shield against the personal Co. Inc., as payee. E.T. Henry and Co., Inc., in turn,
liability of corporate officers, whose acts are properly endorsed the four checks to petitioner Atrium
attributed to the corporation. Moreover, it is axiomatic Management Corporation for valuable
that solidary liability cannot be lightly inferred. Since consideration. Upon presentment for payment, the
solidary liability is not clearly expressed in the drawee bank dishonored all four checks for the
Promissory Note and is not required by law or the common reason payment stopped. Atrium, thus,
nature of the obligation in this case, no conclusion of instituted this action after its demand for payment of
solidary liability can be made.Furthermore, nothing the value of the checks was denied.[3]
supports the alleged joint liability of the individual
petitioners because, as correctly pointed out by the two After due proceedings, on July 20, 1989, the
lower courts, the evidence shows that there is only one trial court rendered a decision ordering Lourdes M.
debtor: the corporation. de Leon, her husband Rafael de Leon, E.T. Henry
and Co., Inc. and Hi-Cement Corporation to pay
petitioner Atrium, jointly and severally, the amount
CASE #:3 of P2 million corresponding to the value of the four
checks, plus interest and attorneys fees.[4]
On appeal to the Court of Appeals, on March
[G.R. No. 109491. February 28, 2001] 17, 1993, the Court of Appeals promulgated its
decision modifying the decision of the trial court,
absolving Hi-Cement Corporation from liability and
dismissing the complaint as against it. The appellate
ATRIUM MANAGEMENT court ruled that: (1) Lourdes M. de Leon was not
CORPORATION, petitioner, authorized to issue the subject checks in favor of
vs. COURT OF APPEALS, E.T. E.T. Henry, Inc.; (2) The issuance of the subject
HENRY AND CO., LOURDES checks by Lourdes M. de Leon and the late Antonio
de las Alas constituted ultra vires acts; and (3) The
VICTORIA M. DE LEON, subject checks were not issued for valuable
RAFAEL DE LEON, JR., AND HI- consideration.[5]
CEMENT
At the trial, Atrium presented as its witness
CORPORATION, respondents. Carlos C. Syquia who testified that in February
1981, Enrique Tan of E.T. Henry approached
Atrium for financial assistance, offering to discount
[G.R. No. 121794. February 28, 2001] 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
LOURDES M. DE LEON, petitioner, the fact that the checks represented payment for
vs. COURT OF APPEALS, petroleum products which E.T. Henry delivered to
ATRIUM MANAGEMENT Hi-Cement. Carlos C. Syquia identified two letters,
dated February 6, 1981 and February 9, 1981 issued
CORPORATION, AND HI-
by Hi-Cement through Lourdes M. de Leon, as
CEMENT treasurer, confirming the issuance of the four checks
CORPORATION, respondents. in favor of E.T. Henry in payment for petroleum
products.[6]
DECISION
Respondent Hi-Cement presented as witness
PARDO, J.: Ms. Erlinda Yap who testified that she was once a
secretary to the treasurer of Hi-Cement, Lourdes M.
de Leon, and as such she was familiar with the four filling of the complaint until fully paid, plus
RCBC checks as the postdated checks issued by Hi- P20,000.00 for attorneys fees.
Cement to E.T. Henry upon instructions of Ms. de (3) Ordering the plaintiff and defendants E.T.
Leon. She testified that E.T. Henry offered to give Henry and Co., Inc. and Lourdes M. de
Hi-Cement a loan which the subject checks would Leon, jointly and severally to pay defendant
secure as collateral.[7] Hi-Cement Corporation, the sum of
P20,000.00 as and for attorneys fees.
On July 20, 1989, the Regional Trial Court,
Manila, Branch 09 rendered a decision, the
dispositive portion of which reads:
With cost in this instance against the
appellee Atrium Management
WHEREFORE, in view of the foregoing Corporation and appellant Lourdes
considerations, and plaintiff having proved its Victoria M. de Leon.
cause of action by preponderance of evidence,
judgment is hereby rendered ordering all the So ordered.[12]
defendants except defendant Antonio de las Hence, the recourse to this Court.[13]
Alas to pay plaintiff jointly and severally the
amount of TWO MILLION (P2,000,000.00) The issues raised are the following:
PESOS with the legal rate of interest from the In G. R. No. 109491 (Atrium, petitioner):
filling of the complaint until fully paid, plus 1. Whether the issuance of the questioned
the sum of TWENTY THOUSAND checks was an ultra vires act;
(P20,000.00) PESOS as and for attorneys fees
2. Whether Atrium was not a holder in due
and the cost of suit. course and for value; and

All other claims are, for lack of merit 3. Whether the Court of Appeals erred in
dismissing the case against Hi-Cement and
dismissed. ordering it to pay P20,000.00 as attorneys
fees.[14]
SO ORDERED.[8]
In G. R. No. 121794 (de Leon, petitioner):
In due time, both Lourdes M. de Leon and Hi- 1. Whether the Court of Appeals erred in
Cement appealed to the Court of Appeals.[9] holding petitioner personally liable for the
Hi-Cement checks issued to E.T. Henry;
Lourdes M. de Leon submitted that the trial
court erred in ruling that she was solidarilly liable 2. Whether the Court of Appeals erred in
with Hi-Cement for the amount of the check. Also, ruling that Atrium is a holder in due course;
that the trial court erred in ruling that Atrium was an 3. Whether the Court of Appeals erred in
ordinary holder, not a holder in due course of the ruling that petitioner Lourdes M. de Leon
rediscounted checks.[10] as signatory of the checks was personally
liable for the value of the checks, which
Hi-Cement on its part submitted that the trial were declared to be issued without
court erred in ruling that even if Hi-Cement did not consideration;
authorize the issuance of the checks, it could still be
held liable for the checks. And assuming that the 4. Whether the Court of Appeals erred in
checks were issued with its authorization, the same ordering petitioner to pay Hi-Cement
attorneys fees and costs.[15]
was without any consideration, which is a defense
against a holder in due course and that the liability We affirm the decision of the Court of Appeals.
shall be borne alone by E.T. Henry.[11]
We first resolve the issue of whether the
On March 17, 1993, the Court of Appeals issuance of the checks was an ultra vires act. The
promulgated its decision modifying the ruling of the record reveals that Hi-Cement Corporation issued
trial court, the dispositive portion of which reads: the four (4) checks to extend financial assistance to
E.T. Henry, not as payment of the balance of the
Judgement is hereby rendered: P30 million pesos cost of hydro oil delivered by
E.T. Henry to Hi-Cement. Why else would
(1) dismissing the plaintiffs complaint as petitioner de Leon ask for counterpart checks from
against defendants Hi-Cement Corporation E.T. Henry if the checks were in payment for hydro
and Antonio De las Alas; oil delivered by E.T. Henry to Hi-Cement?
(2) ordering the defendants E.T. Henry and Hi-Cement, however, maintains that the checks
Co., Inc. and Lourdes M. de Leon, jointly were not issued for consideration and that Lourdes
and severally to pay the plaintiff the sum of and E.T. Henry engaged in a kiting operation to
TWO MILLION PESOS (P2,000,000.00)
raise funds for E.T. Henry, who admittedly was in
with interest at the legal rate from the
need of financial assistance.The Court finds that
there was no sufficient evidence to show that such The next issue is whether or not petitioner
is the case. Lourdes M. de Leon is the treasurer of Atrium was a holder of the checks in due
the corporation and is authorized to sign checks for course. The Negotiable Instruments Law, Section
the corporation. At the time of the issuance of the 52 defines a holder in due course, thus:
checks, there were sufficient funds in the bank to
cover payment of the amount of P2 million pesos. A holder in due course is a holder who has
It is, however, our view that there is basis to taken the instrument under the following
rule that the act of issuing the checks was well conditions:
within the ambit of a valid corporate act, for it was
for securing a loan to finance the activities of the (a) That it is complete and regular upon its
corporation, hence, not an ultra vires act. face;

An ultra vires act is one committed outside the (b) That he became the holder of it before it
was overdue, and without notice that it had
object for which a corporation is created as defined
been previously dishonored, if such was the
by the law of its organization and therefore beyond fact;
the power conferred upon it by law[16] The
term ultra vires is distinguished from an illegal act (c) That he took it in good faith and for value;
for the former is merely voidable which may be (d) That at the time it was negotiated to him he
enforced by performance, ratification, or estoppel, had no notice of any infirmity in the
while the latter is void and cannot be validated.[17] instrument or defect in the title of the
person negotiating it.
The next question to determine is whether
Lourdes M. de Leon and Antonio de las Alas were In the instant case, the checks were crossed
personally liable for the checks issued as corporate checks and specifically indorsed for deposit to
officers and authorized signatories of the check. payees account only.From the beginning, Atrium
was aware of the fact that the checks were all for
"Personal liability of a corporate director,
deposit only to payees account, meaning E.T.
trustee or officer along (although not necessarily)
Henry. Clearly, then, Atrium could not be
with the corporation may so validly attach, as a rule,
considered a holder in due course.
only when:
However, it does not follow as a legal
1. He assents (a) to a patently unlawful act of
the corporation, or (b) for bad faith or gross proposition that simply because petitioner Atrium
negligence in directing its affairs, or (c) for was not a holder in due course for having taken the
conflict of interest, resulting in damages to instruments in question with notice that the same
the corporation, its stockholders or other was for deposit only to the account of payee
persons; E.T. Henry that it was altogether precluded from
recovering on the instrument. The Negotiable
2. He consents to the issuance of watered down
stocks or who, having knowledge thereof, Instruments Law does not provide that a holder not
does not forthwith file with the corporate in due course can not recover on the instrument.[19]
secretary his written objection thereto; The disadvantage of Atrium in not being a
3. He agrees to hold himself personally and holder in due course is that the negotiable
solidarily liable with the corporation; or instrument is subject to defenses as if it were non-
negotiable.[20] One such defense is absence or failure
4. He is made, by a specific provision of law,
to personally answer for his corporate
of consideration.[21] We need not rule on the other
action.[18] issues raised, as they merely follow as a
consequence of the foregoing resolutions.
In the case at bar, Lourdes M. de Leon and
Antonio de las Alas as treasurer and Chairman of WHEREFORE, the petitions are hereby
Hi-Cement were authorized to issue the DENIED. The decision and resolution of the Court
checks. However, Ms. de Leon was negligent when of Appeals in CA-G. R. CV No. 26686, are hereby
she signed the confirmation letter requested by Mr. AFFIRMED in toto.
Yap of Atrium and Mr. Henry of E.T. Henry for the No costs.
rediscounting of the crossed checks issued in favor
of E.T. Henry. She was aware that the checks were SO ORDERED.
strictly endorsed for deposit only to the payees Davide, Jr., C.J. (Chairman), Puno,
account and not to be further negotiated. What is Kapunan, and Ynares-Santiago, JJ., concur.
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.