the amount of P515,493.
89 for completed and
CASE #:1
[G. R. No. 116320. November 29, 1999]
ADALIA FRANCISCO, petitioner,
vs. COURT OF APPEALS ,
HERBY COMMERCIAL & be discharged when the defects and deficiencies are
CONSTRUCTION
CORPORATION AND JAIME C.
ONG, respondents.
DECISION
GONZAGA_REYES, J.:
Assailed in this petition for review
on certiorari is the decision[1] of the Court of
Appeals affirming the decision[2] rendered by
Branch 168 of the Regional Trial Court of Pasig in
Civil Case No. 35231 in favor of private
respondents.
The controversy before this Court finds its
origins in a Land Development and Construction
Contract which was entered into on June 23, 1977
by A. Francisco Realty & Development Corporation
(AFRDC), of which petitioner Adalia Francisco
(Francisco) is the president, and private respondent
Herby Commercial & Construction Corporation
(HCCC), represented by its President and General
Manager private respondent Jaime C. Ong (Ong),
pursuant to a housing project of AFRDC at San Jose
del Monte, Bulacan, financed by the Government
Service Insurance System (GSIS). Under the
contract, HCCC agreed to undertake the
construction of 35 housing units and the
development of 35 hectares of land. The payment of
HCCC for its services was on a turn-key basis, that
is, HCCC was to be paid on the basis of the
completed houses and developed lands delivered to
and accepted by AFRDC and the GSIS. To facilitate
payment, AFRDC executed a Deed of Assignment
in favor of HCCC to enable the latter to collect
payments directly from the GSIS. Furthermore, the
GSIS and AFRDC put up an Executive Committee
Account with the Insular Bank of Asia & America
(IBAA) in the amount of P4,000,000.00 from which
checks would be issued and co-signed by petitioner
Francisco and the GSIS Vice-President Armando
Diaz (Diaz).
On February 10, 1978, HCCC filed a
complaint[3] with the Regional Trial Court of
Quezon City against Francisco, AFRDC and the
GSIS for the collection of the unpaid balance under
the Land Development and Construction Contract in
delivered housing units and land
development. However, the parties eventually
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
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
owed HCCC P520,177.50 representing incomplete
construction of housing units, incomplete land
development and 5% retention, which amount will
finally completed by HCCC. It was also provided
that HCCC was indebted to AFRDC in the amount
of P180,234.91 which the former agreed would be
paid out of the proceeds from the 40 housing units
still to be turned over by HCCC or from any amount
due to HCCC from the GSIS. Consequently, the
trial court dismissed the case upon the filing by the
parties of a joint motion to dismiss.
Sometime in 1979, after an examination of the
records of the GSIS, Ong discovered that Diaz and
Francisco had executed and signed seven
checks[4], of various dates and amounts, drawn
against the IBAA and payable to HCCC for
completed and delivered work under the contract.
Ong, however, claims that these checks were never
delivered to HCCC. Upon inquiry with Diaz, Ong
learned that the GSIS gave Francisco custody of the
checks since she promised that she would deliver
the same to HCCC. Instead, Francisco forged the
signature of Ong, without his knowledge or consent,
at the dorsal portion of the said checks to make it
appear that HCCC had indorsed the checks;
Francisco then indorsed the checks for a second
time by signing her name at the back of the checks
and deposited the checks in her IBAA savings
account. IBAA credited Franciscos account with the
amount of the checks and the latter withdrew the
amount so credited.
On June 7, 1979, Ong filed complaints with the
office of the city fiscal of Quezon City, charging
Francisco with estafa thru falsification of
commercial documents. Francisco denied having
forged Ongs signature on the checks, claiming that
Ong himself indorsed the seven checks in behalf of
HCCC and delivered the same to Francisco in
payment of the loans extended by Francisco to
HCCC. According to Francisco, she agreed to grant
HCCC the loans in the total amount of P585,000.00
and covered by eighteen promissory notes in order
to obviate the risk of the non-completion of the
project. As a means of repayment, Ong allegedly
issued a Certification authorizing Francisco to
collect HCCCs receivables from the
GSIS. Assistant City Fiscal Ramon M. Gerona gave
credence to Franciscos claims and accordingly,
dismissed the complaints, which dismissal was
affirmed by the Minister of Justice in a resolution
issued on June 5, 1981.
The present case was brought by private
respondents on November 19, 1979 against
Francisco and IBAA for the recovery of
P370,475.00, representing the total value of the
seven checks, and for damages, attorneys fees,
expenses of litigation and costs. After trial on the
merits, the trial court rendered its decision in favor
of private respondents, the dispositive portion of
which provides -
WHEREFORE, premises considered,
judgment is hereby rendered in favor of the
plaintiffs and against the defendants
INSULAR BANK OF ASIA & AMERICA
and ATTY. ADALIA FRANCISCO, to
jointly and severally pay the plaintiffs the
amount of P370.475.00 plus interest thereon
at the rate of 12% per annum from the date of
the filing of the complaint until the full
amount is paid; moral damages to plaintiff
Jaime Ong in the sum of P50,000.00;
exemplary damages of P50,000.00; litigation
expenses of P5,000.00; and attorneys fees of
P50,000.00.
With respect to the cross-claim of the
defendant IBAA against its co-defendant Atty.
Adalia Francisco, the latter is ordered to
reimburse the former for the sums that the
Bank shall pay to the plaintiff on the forged
checks including the interests paid thereon.
Further, the defendants are ordered to pay the
costs.
Based upon the findings of handwriting experts
from the National Bureau of Investigation (NBI),
the trial court held that Francisco had indeed forged
the signature of Ong to make it appear that he had
indorsed the checks. Also, the court ruled that there
were no loans extended, reasoning that it was
unbelievable that HCCC was experiencing financial
difficulties so as to compel it to obtain the loans
from AFRDC in view of the fact that the GSIS had
issued checks in favor of HCCC at about the same
time that the alleged advances were made. The trial
court stated that it was plausible that Francisco
concealed the fact of issuance of the checks from
private respondents in order to make it appear as if
she were accommodating private respondents, when
in truth she was lending HCCC its own money.
With regards to the Memorandum Agreement
entered into between AFRDC and HCCC in Civil
Case No. Q-24628, the trial court held that the same
did not make any mention of the forged checks
since private respondents were as of yet unaware of
their existence, that fact having been effectively
concealed by Francisco, until private respondents
acquired knowledge of Franciscos misdeeds in
1979.
IBAA was held liable to private respondents for
having honored the checks despite such obvious
irregularities as the lack of initials to validate the
alterations made on the check, the absence of the
signature of a co-signatory in the corporate checks
of HCCC and the deposit of the checks on a second
indorsement in the savings account of
Francisco. However, the trial court allowed IBAA
recourse against Francisco, who was ordered to
reimburse the IBAA for any sums it shall have to
pay to private respondents.[5]
Both Francisco and IBAA appealed the trial
courts decision, but the Court of Appeals dismissed
IBAAs appeal for its failure to file its brief within
the 45-day extension granted by the appellate court.
IBAAs motion for reconsideration and petition for
review on certiorari filed with this Court were also
similarly denied. On November 21, 1989, IBAA
and HCCC entered into a Compromise Agreement
which was approved by the trial court, wherein
HCCC acknowledged receipt of the amount of
P370,475.00 in full satisfaction of its claims against
IBAA, without prejudice to the right of the latter to
pursue its claims against Francisco.
On June 29, 1992, the Court of Appeals
affirmed the trial courts ruling, hence this petition
for review on certiorari filed by petitioner,
assigning the following errors to the appealed
decision
1. The respondent Court of Appeals erred in
concluding that private respondents did not
owe Petitioner the sum covered by the
Promissory Notes Exh.2-2-A-2-P
(FRANCISCO). Such conclusion was based
mainly on conjectures, surmises and
speculation contrary to the unrebutted
pleadings and evidence presented by
petitioner.
2. The respondent Court of Appeals erred in
holding that Petitioner falsified the signature
of private respondent ONG on the checks in
question without any authority therefor which
is patently contradictory to the unrebutted
pleading and evidence that petitioner was
expressly authorized by respondent HERBY
thru ONG to collect all receivables of
HERBY from GSIS to pay the loans extended
to them. (Exhibit 3).
3. That respondent Court of Appeals erred in
holding that the seven checks in question were
not taken up in the liquidation and
reconciliation of all outstanding account
between AFRDC and HERBY as
acknowledged by the parties in Memorandum
Agreement (Exh. 5) is a pure conjecture,
surmise and speculation contrary to the
unrebutted evidence presented by petitioners.
It is an inference made which is manifestly
mistaken.
4. The respondent Court of Appeals erred in
affirming the decision of the lower court and
dismissing the appeal.[6]
The pivotal issue in this case is whether or not
Francisco forged the signature of Ong on the seven
checks. In this connection, we uphold the lower
courts finding that the subject matter of the present
case, specifically the seven checks, drawn by GSIS
and AFRDC, dated between October to November
1977, in the total amount of P370,475.00 and
payable to HCCC, was not included in the
Memorandum Agreement executed by HCCC and
AFRDC in Civil Case No. Q-24628. As observed
by the trial court, aside from there being absolutely
no mention of the checks in the said agreement, the
amounts represented by said checks could not have
been included in the Memorandum Agreement
executed in 1978 because private respondents only
discovered Franciscos acts of forgery in 1979. The
lower courts found that Francisco was able to easily
conceal from private respondents even the fact of
the issuance of the checks since she was a co-
signatory thereof.[7] We also note that Francisco had
custody of the checks, as proven by the check
vouchers bearing her uncontested signature,[8] by
which she, in effect, acknowledged having received
the checks intended for HCCC. This contradicts
Franciscos claims that the checks were issued to
Ong who delivered them to Francisco already
indorsed.[9]
As regards the forgery, we concur with the
lower courts finding that Francisco forged the
signature of Ong on the checks to make it appear as
if Ong had indorsed said checks and that, after
indorsing the checks for a second time by signing
her name at the back of the checks, Francisco
deposited said checks in her savings account with
IBAA. The forgery was satisfactorily established in
the trial court upon the strength of the findings of
the NBI handwriting expert.[10] Other than
petitioners self-serving denials, there is nothing in
the records to rebut the NBIs findings. Well-
entrenched is the rule that findings of trial courts
which are factual in nature, especially when
affirmed by the Court of Appeals, deserve to be
respected and affirmed by the Supreme Court,
provided it is supported by substantial evidence on
record,[11] as it is in the case at bench.
Petitioner claims that she was, in any event,
authorized to sign Ongs name on the checks by
virtue of the Certification executed by Ong in her
favor giving her the authority to collect all the
receivables of HCCC from the GSIS, including the
questioned checks.[12] Petitioners alternative defense
must similarly fail. The Negotiable Instruments
Law provides that where any person is under
obligation to indorse in a representative capacity, he
may indorse in such terms as to negative personal
liability.[13] An agent, when so signing, should
indicate that he is merely signing in behalf of the
principal and must disclose the name of his
principal; otherwise he shall be held personally
liable.[14] Even assuming that Francisco was
authorized by HCCC to sign Ongs name, still,
Francisco did not indorse the instrument in
accordance with law. Instead of signing Ongs name,
Francisco should have signed her own name and
expressly indicated that she was signing as an agent
of HCCC. Thus, the Certification cannot be used by
Francisco to validate her act of forgery.
Every person who, contrary to law, wilfully or
negligently causes damage to another, shall
indemnify the latter for the same.[15] Due to her
forgery of Ongs signature which enabled her to
deposit the checks in her own account, Francisco
deprived HCCC of the money due it from the GSIS
pursuant to the Land Development and Construction
Contract. Thus, we affirm respondent courts award
of compensatory damages in the amount of
P370,475.00, but with a modification as to the
interest rate which shall be six percent (6%) per
annum, to be computed from the date of the filing
of the complaint since the amount of damages was
alleged in the complaint;[16] however, the rate of
interest shall be twelve percent (12%) per annum
from the time the judgment in this case becomes
final and executory until its satisfaction and the
basis for the computation of this twelve percent
(12%) rate of interest shall be the amount of
P370,475.00. This is in accordance with the
doctrine enunciated in Eastern Shipping Lines, Inc.
vs. Court of Appeals, et al.,[17] which was reiterated
in Philippine National Bank vs. Court of
Appeals,[18] Philippine Airlines, Inc. vs. Court of
Appeals[19]and in Keng Hua Paper Products Co.,
Inc. vs. Court of Appeals,[20] which provides that -
1. When an obligation is breached, and it
consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due
should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan
or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at
the discretion of the court at the rate of six percent
(6%) per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except
when or until the demand can be established with
reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so
reasonably established at the time the demand is
made, the interest shall begin to run only from the
date the judgment of the court is made (at which
time the quantification of damages may be deemed
to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a
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
percent (12%) per annum from such finality until its
satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.
We also sustain the award of exemplary
damages in the amount of P50,000.00. Under
Article 2229 of the Civil Code, exemplary damages
are imposed by way of example or correction for
the public good, in addition to the moral, temperate,
liquidated or compensatory damages. Considering
petitioners fraudulent act, we hold that an award of
P50,000.00 would be adequate, fair and
reasonable. The grant of exemplary damages
justifies the award of attorneys fees in the amount
of P50,000.00, and the award of P5,000.00 for
litigation expenses.[21]
The appellate courts award of P50,000.00 in
moral damages is warranted. Under Article 2217 of
the Civil Code, moral damages may be granted
upon proof of physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation
and similar injury.[22] Ong testitified that he suffered
sleepless nights, embarrassment, humiliation and
anxiety upon discovering that the checks due his
company were forged by petitioner and that
petitioner had filed baseless criminal complaints
against him before the fiscals office of Quezon City
which disrupted HCCCs business operations.[23]
WHEREFORE, we AFFIRM the respondent
courts decision promulgated on June 29, 1992,
upholding the February 16, 1988 decision of the
trial court in favor of private respondents, with the
modification that the interest upon the actual
damages awarded shall be at six percent (6%) per
annum, which interest rate shall be computed from
the time of the filing of the complaint on November
19, 1979. However, the interest rate shall be twelve
percent (12%) per annum from the time the
judgment in this case becomes final and executory
and until such amount is fully paid. The basis for
computation of the six percent and twelve percent
rates of interest shall be the amount of
P370,475.00. No pronouncement as to costs.
SO ORDERED.
CASE DIGEST
FACTS:
 June 23, 1977: Adalia Francisco (Francisco)
president of A. Francisco Realty & Development
Corporation (AFRDC) and Jaime C. Ong
(Ong) President and General Manager of Herby
Commercial & Construction Corporation
(HCCC), entered into a contract where HCCC
agreed to undertake the construction of 35
housing units and the development of 35
hectares of land.
 HCCC was to be paid on turn-key basis (basis of
the completed houses and developed lands
delivered to and accepted by AFRDC and the
GSIS)
 To facilitate payment, AFRDC executed a Deed
of Assignment in favor of HCCC to enable the it
to collect payments directly from the GSIS.
 Furthermore, the GSIS and AFRDC put up an
Executive Committee Account with the Insular
Bank of Asia & America (IBAA) of P4M from
which checks would be issued and co-signed by
petitioner Francisco and the GSIS Vice-President
Armando Diaz (Diaz).
 February 10, 1978: HCCC filed a complaint w/
the RTC against Francisco, AFRDC and the
GSIS for the collection of the unpaid balance
under the Land Development and Construction
Contract in the amount of P515,493.89 for
completed and delivered housing units and land
development.
 Sometime in 1979: Ong discovered that Diaz and
Francisco had executed and signed 7
checks drawn against the IBAA and payable to
HCCC but were never delivered to HCCC
 GSIS gave Francisco custody of the checks since
she promised that she would deliver the same to
HCCC.
 Francisco forged the signature of Ong, without
his knowledge or consent, at the dorsal portion
of the said checks to make it appear that HCCC
had indorsed the checks; Francisco then indorsed
the checks for a second time by signing her name
at the back of the checks and deposited the
checks in her IBAA savings account

 June 7, 1979: Ong filed complaints charging
Francisco with estafa thru falsification of
commercial documents - dismmised by the
Assistant City Fiscal
 According to Francisco, she agreed to grant
HCCC the loans in the total amount of P585K
and covered by 18 promissory notes in order to
obviate the risk of the non-completion of the
project.
 As a means of repayment, Ong allegedly issued a
Certification authorizing Francisco to collect
HCCCs receivables from the GSIS
 RTC: favored Ong and against IBAA and
Francisco
 November 21, 1989: IBAA and HCCC entered
into a Compromise Agreement which was
approved by the trial court, wherein HCCC
acknowledged receipt of the amount of
P370,475.00 in full satisfaction of its claims
against IBAA, without prejudice to the right of
IBAA to pursue its claims against Francisco.
 CA affirmed RTC
 Francisco claims that she was, in any event,
authorized to sign Ongs name on the checks by
virtue of the Certification executed by Ong in her
favor giving her the authority to collect all the
receivables of HCCC from the GSIS, including
the questioned checks.
ISSUE: W/N Francisco can sign Ongs name on the
checks and it was not forgery
HELD: NO.
 Francisco had custody of the checks, as proven
by the check vouchers bearing her uncontested
signature
 Francisco forged the signature of Ong on the
checks to make it appear as if Ong had indorsed
said checks
 The Negotiable Instruments Law provides that
where any person is under obligation to indorse
in a representative capacity, he may indorse in
such terms as to negative personal liability
 An agent, when so signing, should indicate that
he is merely signing in behalf of the principal
and must disclose the name of his principal;
otherwise he shall be held personally liable
 Instead of signing Ongs name, Francisco should
have signed her own name and expressly
indicated that she was signing as an agent of
HCCC
CASE #:2
[G.R. No. 153535. July 28, 2005]
SOLIDBANK
CORPORATION, petitioner, vs.
MINDANAO
FERROALLOY CORPORATION,
Spouses JONG-WON HONG and
SOO-OK KIM HONG,* TERESITA
CU, and RICARDO P. GUEVARA
and Spouse,** respondents.
DECISION
PANGANIBAN, J.:
To justify an award for moral and
exemplary damages under Articles 19 to
21 of the Civil Code (on human relations),
the claimants must establish the other
partys malice or bad faith by clear and
convincing evidence.
The Case
Before us is a Petition for
Review[1] under Rule 45 of the Rules of
Court, assailing the December 21, 2001
Decision[2] and the May 15, 2002
Resolution[3] of the Court of Appeals (CA)
in CA-GR CV No. 67482. The CA
disposed as follows:
IN THE LIGHT OF ALL THE
FOREGOING, the appeal is DISMISSED.
The Decision appealed from
is AFFIRMED.[4]
The assailed Resolution, on the other
hand, denied petitioners Motion for
Reconsideration.
The Facts
The CA narrated the antecedents as
follows:
The Maria Cristina Chemical Industries
(MCCI) and three (3) Korean corporations,
namely, the Ssangyong Corporation, the
Pohang Iron and Steel Company and the
Dongil Industries Company, Ltd., decided to
forge a joint venture and establish a
corporation, under the name of the Mindanao
Ferroalloy Corporation (Corporation for
brevity) with principal offices in Iligan City.
Ricardo P. Guevara was the President and
Chairman of the Board of Directors of the
Corporation. Jong-Won Hong, the General
Manager of Ssangyong Corporation, was the
Vice-President of the Corporation for Finance,
Marketing and Administration. So was
Teresita R. Cu. On November 26, 1990, the
Board of Directors of the Corporation
approved a Resolution authorizing its
President and Chairman of the Board of
Directors or Teresita R. Cu, acting together
with Jong-Won Hong, to secure an omnibus
line in the aggregate amount
of P30,000,000.00 from the Solidbank x x x.
xxxxxxxxx
In the meantime, the Corporation started its
operations sometime in April, 1991. Its
indebtedness ballooned to P200,453,686.69
compared to its assets of only P65,476,000.00.
On May 21, 1991, the Corporation secured an
ordinary time loan from the Solidbank in the
amount of P3,200,000.00. Another ordinary
time loan was granted by the Bank to the
Corporation on May 28, 1991, in the amount
of P1,800,000.00 or in the total amount
of P5,000,000.00, due on July 15 and 26,
1991, respectively.
However, the Corporation and the Bank
agreed to consolidate and, at the same time,
restructure the two (2) loan availments, the
same payable on September 20, 1991. The
Corporation executed Promissory Note No.
96-91-00865-6 in favor of the Bank
evidencing its loan in the amount
of P5,160,000.00, payable on September 20,
1991. Teresita Cu and Jong-Won Hong
affixed their signatures on the note. To secure
the payment of the said loan, the Corporation,
through Jong-Won Hong and Teresita Cu,
executed a Deed of Assignment in favor of the
Bank covering its rights, title and interest to
the following:
The entire proceeds of drafts drawn under
Irrevocable Letter of Credit No. M-S-041-
2002080 opened with The Mitsubishi Bank
Ltd. Tokyo dated June 13, 1991 for the
account of Ssangyong Japan Corporation, 7F.
Matsuoka-Tamura-Cho Bldg., 22-10, 5-
Chome, Shimbashi, Minato-Ku, Tokyo, Japan
up to the extent of US$197,679.00
The Corporation likewise executed a Quedan,
by way of additional security, under which the
Corporation bound and obliged to keep and
hold, in trust for the Bank or its
Order, Ferrosilicon for US$197,679.00. Jong-
Won Hong and Teresita Cu affixed their
signatures thereon for the Corporation. The
Corporation, also, through Jong-Won Hong
and Teresita Cu, executed a Trust Receipt
Agreement, by way of additional security for
said loan, the Corporation undertaking to hold
in trust, for the Bank, as its property, the
following:
1. THE MITSUBISHI BANK LTD.,
Tokyo L/C No. M-S-041-
2002080 for account of
Ssangyong Japan Corporation,
Tokyo, Japan for US$197,679.00
Ferrosilicon to expire September
20, 1991.
2. SEC QUEDAN NO. 91-476 dated
June 26, 1991 covering the
following:
Ferrosilicon for US$197,679.00
However, shortly after the execution of the
said deeds, the Corporation stopped its
operations. The Corporation failed to pay its
loan availments from the Bank inclusive of
accrued interest. On February 11, 1992, the
Bank sent a letter to the Corporation
demanding payment of its loan availments
inclusive of interests due. The Corporation
failed to comply with the demand of the Bank.
On November 23, 1992, the Bank sent another
letter to the [Corporation] demanding
payment of its account which, by November
23, 1992, had amounted to P7,283,913.33.
The Corporation again failed to comply with
the demand of the Bank.
On January 6, 1993, the Bank filed a
complaint against the Corporation with the
Regional Trial Court of Makati City, entitled
and docketed as Solidbank Corporation vs.
Mindanao Ferroalloy Corporation, Sps. Jong-
Won Hong and the Sps. Teresita R. Cu, Civil
Case No. 93-038 for Sum of Money with a
plea for the issuance of a writ of preliminary
attachment. x x x
xxxxxxxxx
Under its Amended Complaint, the Plaintiff
alleged that it impleaded Ricardo Guevara and
his wife as Defendants because, [among
others]:
Defendants JONG-WON HONG and
TERESITA CU, are the Vice-Presidents of
defendant corporation, and also members of
the companys Board of Directors. They are
impleaded as joint and solidary debtors of
[petitioner] bank having signed the
Promissory Note, Quedan, and Trust Receipt
agreements with [petitioner], in this case.
xxxxxxxxx
[Petitioner] likewise filed a criminal
complaint x x x entitled and docketed as
Solidbank Corporation vs. Ricardo Guevara,
Teresita R. Cu and Jong Won Hong x x x for
Violation of P.D. 115. On April 14, 1993, the
investigating Prosecutor issued a Resolution
finding no probable cause for violation of
P.D. 115 against the Respondents as the goods
covered by the quedan were nonexistent:
xxxxxxxxx
In their Answer to the complaint [in the civil
case], the Spouses Jong-Won Hong and Soo-
ok Kim Hong alleged, inter alia, that
[petitioner] had no cause of action against
them as:
x x x the clean loan of P5.1 M obtained was a
corporate undertaking of defendant
MINFACO executed through its duly
authorized representatives, Ms. Teresita R. Cu
and Mr. Jong-Won Hong, both Vice
Presidents then of MINFACO. x x x.
xxxxxxxxx
[On their part, respondents] Teresita Cu and
Ricardo Guevara alleged that [petitioner] had
no cause of action against them because: (a)
Ricardo Guevara did not sign any of the
documents in favor of [petitioner]; (b)
Teresita Cu signed the Promissory Note, Deed
of Assignment, Trust Receipt and Quedan in
blank and merely as representative and, hence,
for and in behalf of the Defendant
Corporation and, hence, was not personally
liable to [petitioner].
In the interim, the Corporation filed, on June
20, 1994, a Petition, with the Regional Trial
Court of Iligan City, for Voluntary
Insolvency x x x.
xxxxxxxxx
Appended to the Petition was a list of its
creditors, including [petitioner], for the
amount of P8,144,916.05. The Court issued an
Order, on July 12, 1994, finding the Petition
sufficient in form and substance x x x.
xxxxxxxxx
In view of said development, the Court issued
an Order, in Civil Case No. 93-038,
suspending the proceedings as against the
Defendant Corporation but ordering the
proceedings to proceed as against the
individual defendants x x x.
xxxxxxxxx
On December 10, 1999, the Court rendered a
Decision dismissing the complaint for lack of
cause of action of [petitioner] against the
Spouses Jong-Won Hong, Teresita Cu and the
Spouses Ricardo Guevara, x x x.
xxxxxxxxx
In dismissing the complaint against the
individual [respondents], the Court a
quo found and declared that [petitioner] failed
to adduce a morsel of evidence to prove the
personal liability of the said [respondents] for
the claims of [petitioner] and that the latter
impleaded the [respondents], in its complaint
and amended complaint, solely to put more
pressure on the Defendant Corporation to pay
its obligations to [petitioner].
[Petitioner] x x x interposed an appeal, from
the Decision of the Court a quo and posed, for
x x x resolution, the issue of whether or not
the individual [respondents], are jointly and
severally liable to [petitioner] for the loan
availments of the [respondent] Corporation,
inclusive of accrued interests and penalties.
In the meantime, on motion of [petitioner], the
Court set aside its Order, dated February 2,
1995, suspending the proceedings as against
the [respondent] Corporation. [Petitioner]
filed a Motion for Summary Judgment against
the [respondent] Corporation. On February
28, 2000, the Court rendered a Summary
Judgment against the [respondent]
Corporation, the decretal portion of which
reads as follows:
WHEREFORE, premises considered, this
Court hereby resolves to give due course to
the motion for summary judgment filed by
herein [petitioner]. Consequently, judgment is
hereby rendered in favor of
[Petitioner]SOLIDBANK CORPORATION and
against [Respondent] MINDANAO
FERROALLOY CORPORATION, ordering the
latter to pay the former the amount
of P7,086,686.70, representing the
outstanding balance of the subject loan as of
24 September 1994, plus stipulated interest at
the rate of 16% per annum to be computed
from the aforesaid date until fully paid
together with an amount equivalent to 12% of
the total amount due each year from 24
September 1994 until fully paid. Lastly, said
[respondent] is hereby ordered to pay
[petitioner] the amount of P25,000.00 to
[petitioner] as reasonable attorneys fees as
well as cost of litigation.[5]
In its appeal, petitioner argued that (1)
it had adduced the requisite evidence to
prove the solidary liability of the individual
respondents, and (2) it was not liable for
their counterclaims for damages and
attorneys fees.
Ruling of the Court of Appeals
Affirming the RTC, the appellate court
ruled that the individual respondents were
not solidarily liable with the Mindanao
Ferroalloy Corporation, because they had
acted merely as officers of the
corporation, which was the real party in
interest. Respondent Guevara was not
even a signatory to the Promissory Note,
the Trust Receipt Agreement, the Deed of
Assignment or the Quedan; he was
merely authorized to represent Minfaco to
negotiate with and secure the loans from
the bank. On the other hand, the CA
noted that Respondents Cu and Hong
had not signed the above documents as
comakers, but as signatories in their
representative capacities as officers of
Minfaco.
Likewise, the CA held that the
individual respondents were not liable to
petitioner for damages, simply because
(1) they had not received the proceeds of
the irrevocable Letter of Credit, which was
the subject of the Deed of Assignment;
and (2) the goods subject of the Trust
Receipt Agreement had been found to be
nonexistent. The appellate court took
judicial notice of the practice of banks and
financing institutions to investigate,
examine and assess all properties offered
by borrowers as collaterals, in order to
determine the feasibility and advisability
of granting loans. Before agreeing to the
consolidation of Minfacos loans, it
presumed that petitioner had done its
homework.
As to the award of damages to the
individual respondents, the CA upheld the
trial courts findings that it was clearly
unfair on petitioners part to have
impleaded the wives of Guevara and
Hong, because the women were not privy
to any of the transactions between
petitioner and Minfaco. Under Articles 19,
20 and 2229 of the Civil Code, such
reckless and wanton act of pressuring
individual respondents to settle the
corporations obligations is a ground to
award moral and exemplary damages, as
well as attorneys fees.
Hence this Petition.[6]
Issues
In its Memorandum, petitioner raises
the following issues:
A. Whether or not there is ample evidence on
record to support the joint and solidary
liability of individual respondents with
Mindanao Ferroalloy Corporation.
B. In the absence of joint and solidary
liability[,] will the provision of Article 1208
in relation to Article 1207 of the New Civil
Code providing for joint liability be applicable
to the case at bar.
C. May bank practices be the proper subject
of judicial notice under Sec. 1 [of] Rule 129
of the Rules of Court.
D. Whether or not there is evidence to sustain
the claim that respondents were impleaded to
apply pressure upon them to pay the
obligations in lieu of MINFACO that is
declared insolvent.
E. Whether or not there are sufficient bases
for the award of various kinds of and
substantial amounts in damages including
payment for attorneys fees.
F. Whether or not respondents committed
fraud and misrepresentations and acted in bad
faith.
G. Whether or not the inclusion of
respondents spouses is proper under certain
circumstances and supported by prevailing
jurisprudence.[7]
In sum, there are two main questions:
(1) whether the individual respondents
are liable, either jointly or solidarily, with
the Mindanao Ferroalloy Corporation; and
(2) whether the award of damages to the
individual respondents is valid and legal.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability of Individual Respondents
Petitioner argues that the individual
respondents were jointly or solidarily
liable with Minfaco, either because their
participation in the loan contract and the
loan documents made them comakers; or
because they committed fraud and
deception, which justifies the piercing of
the corporate veil.
The first contention hinges on certain
factual determinations made by the trial
and the appellate courts. These tribunals
found that, although he had not signed
any document in connection with the
subject transaction, Respondent Guevara
was authorized to represent Minfaco in
negotiating for a P30 million loan from
petitioner. As to Cu and Hong, it was
determined, among others, that their
signatures on the loan documents other
than the Deed of Assignment were not
prefaced with the word by, and that there
were no other signatures to indicate who
had signed for and on behalf of Minfaco,
the principal borrower. In the Promissory
Note, they signed above the printed name
of the corporation -- on the space
provided for Maker/Borrower, not on that
provided for Co-maker.
Petitioner has not shown any
exceptional circumstance that sanctions
the disregard of these findings of fact,
which are thus deemed final and
conclusive upon this Court and may not
be reviewed on appeal.[8]
No Personal Liability
for Corporate Deeds
Basic is the principle that a
corporation is vested by law with a
personality separate and distinct from that
of each person composing[9] or
representing it.[10] Equally fundamental is
the general rule that corporate officers
cannot be held personally liable for the
consequences of their acts, for as long as
these are for and on behalf of the
corporation, within the scope of their
authority and in good faith.[11] The
separate corporate personality is a shield
against the personal liability of corporate
officers, whose acts are properly
attributed to the corporation.[12]
Tramat Mercantile v. Court of
Appeals[13] held thus:
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
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.
Consistent with the foregoing
principles, we sustain the CAs ruling that
Respondent Guevara was not personally
liable for the contracts. First, it is beyond
cavil that he was duly authorized to act on
behalf of the corporation; and that in
negotiating the loans with petitioner, he
did so in his official capacity. Second, no
sufficient and specific evidence was
presented to show that he had acted in
bad faith or gross negligence in that
negotiation. Third, he did not hold himself
personally and solidarily liable with the
corporation. Neither is there any specific
provision of law making him personally
answerable for the subject corporate acts.
On the other hand, Respondents Cu
and Hong signed the Promissory Note
without the word by preceding their
signatures, atop the designation
Maker/Borrower and the printed name of
the corporation, as follows:
__(Sgd) Cu/Hong__
(Maker/Borrower)
MINDANAO FERROALLOY
While their signatures appear without
qualification, the inference that they
signed in their individual capacities is
negated by the following facts: 1) the
name and the address of the corporation
appeared on the space provided for
Maker/Borrower; 2) Respondents Cu and
Hong had only one set of signatures on
the instrument, when there should have
been two, if indeed they had intended to
be bound solidarily -- the first as
representatives of the corporation, and
the second as themselves in their
individual capacities; 3) they did not sign
under the spaces provided for Co-maker,
and neither were their addresses
reflected there; and 4) at the back of the
Promissory Note, they signed above the
words Authorized Representative.
Solidary Liability
Not Lightly Inferred
Moreover, it is axiomatic that solidary
liability cannot be lightly inferred.[14] Under
Article 1207 of the Civil Code, there is a
solidary liability only when the obligation
expressly so states, or when the law or
the nature of the obligation requires
solidarity. Since solidary liability is not
clearly expressed in the Promissory Note
and is not required by law or the nature of
the obligation in this case, no conclusion
of solidary liability can be made.
Furthermore, nothing supports the
alleged joint liability of the individual
petitioners because, as correctly pointed
out by the two lower courts, the evidence
shows that there is only one debtor: the
corporation. In a joint obligation, there
must be at least two debtors, each of
whom is liable only for a proportionate
part of the debt; and the creditor is
entitled only to a proportionate part of the
credit.[15]
Moreover, it is rather late in the day to
raise the alleged joint liability, as this
matter has not been pleaded before the
trial and the appellate courts. Before the
lower courts, petitioner anchored its claim
solely on the alleged joint and several (or
solidary) liability of the individual
respondents. Petitioner must be reminded
that an issue cannot be raised for the first
time on appeal, but seasonably in the
proceedings before the trial court.[16]
So too, the Promissory Note in
question is a negotiable instrument.
Under Section 19 of the Negotiable
Instruments Law, agents or
representatives may sign for the principal.
Their authority may be established, as in
other cases of agency. Section 20 of the
law provides that a person signing for and
on behalf of a [disclosed] principal or in a
representative capacity x x x is not liable
on the instrument if he was duly
authorized.
The authority of Respondents Cu and
Hong to sign for and on behalf of the
corporation has been amply established
by the Resolution of Minfacos Board of
Directors, stating that Atty. Ricardo P.
Guevara (President and Chairman), or
Ms. Teresita R. Cu (Vice President),
acting together with Mr. Jong Won Hong
(Vice President), be as they are hereby
authorized for and in behalf of the
Corporation to: 1. Negotiate with and
obtain from (petitioner) the extension of
an omnibus line in the aggregate of P30
million x x x; and 2. Execute and deliver
all documentation necessary to
implement all of the foregoing.[17]
Further, the agreement involved here
is a contract of adhesion, which was
prepared entirely by one party and offered
to the other on a take it or leave it basis.
Following the general rule, the contract
must be read against petitioner, because
it was the party that prepared it,[18] more
so because a bank is held to high
standards of care in the conduct of its
business.[19]
In the totality of the circumstances, we
hold that Respondents Cu and Hong
clearly signed the Note merely as
representatives of Minfaco.
No Reason to Pierce
the Corporate Veil
Under certain circumstances, courts
may treat a corporation as a mere
aggroupment of persons, to whom liability
will directly attach. The distinct and
separate corporate personality may be
disregarded, inter alia, when the
corporate identity is used to defeat public
convenience, justify a wrong, protect a
fraud, or defend a crime. Likewise, the
corporate veil may be pierced when the
corporation acts as a mere alter ego or
business conduit of a person, or when it is
so organized and controlled and its affairs
so conducted as to make it merely an
instrumentality, agency, conduit or
adjunct of another corporation.[20] But to
disregard the separate juridical
personality of a corporation, the
wrongdoing must be clearly and
convincingly established; it cannot be
presumed.[21]
Petitioner contends that the
corporation was used to protect the fraud
foisted upon it by the individual
respondents. It argues that the CA failed
to consider the following badges of fraud
and evident bad faith: 1) the individual
respondents misrepresented the
corporation as solvent and financially
capable of paying its loan; 2) they knew
that prices of ferrosilicon were declining in
the world market when they secured the
loan in June 1991; 3) not a single centavo
was paid for the loan; and 4) the
corporation suspended its operations
shortly after the loan was granted.[22]
Fraud refers to all kinds of deception -
- whether through insidious machination,
manipulation, concealment or
misrepresentation -- that would lead an
ordinarily prudent person into error after
taking the circumstances into
account. In contracts, a fraud known
[23]
as dolo causante or causal fraud[24] is
basically a deception used by one party
prior to or simultaneous with the contract,
in order to secure the consent of the
other.[25] Needless to say, the deceit
employed must be serious. In
contradistinction, only some particular or
accident of the obligation is referred to by
incidental fraud or dolo incidente,[26] or
that which is not serious in character and
without which the other party would have
entered into the contract anyway.[27]
Fraud must be established by clear
and convincing evidence; mere
preponderance of evidence is not
adequate.[28] Bad faith, on the other hand,
imports a dishonest purpose or some
moral obliquity and conscious doing of a
wrong, not simply bad judgment or
negligence.[29] It is synonymous with
fraud, in that it involves a design to
mislead or deceive another.[30]
Unfortunately, petitioner was unable to
establish clearly and precisely how the
alleged fraud was committed. It failed to
establish that it was deceived into
granting the loans because of
respondents misrepresentations and/or
insidious actions. Quite the contrary,
circumstances indicate the weakness of
its submission.
First, petitioner does not deny that
the P5 million loan represented the
consolidation of two loans,[31]granted long
before the bank required the individual
respondents to execute the Promissory
Note, Trust Receipt Agreement, Quedan
or Deed of Assignment. Hence, no words,
acts or machinations arising from any of
those instruments could have been used
by them prior to or simultaneous with the
execution of the contract, or even as
some accident or particular of the
obligation.
Second, petitioner bank was in a
position to verify for itself the solvency
and trustworthiness of respondent
corporation. In fact, ordinary business
prudence required it to do so before
granting the multimillion loans. It is of
common knowledge that, as a matter of
practice, banks conduct exhaustive
investigations of the financial standing of
an applicant debtor, as well as appraisals
of collaterals offered as securities for
loans to ensure their prompt and
satisfactory payment. To uphold
petitioners cry of fraud when it failed to
verify the existence of the goods covered
by the Trust Receipt Agreement and the
Quedan is to condone its negligence.
Judicial Notice
of Bank Practices
This point brings us to the alleged
error of the appellate court in taking
judicial notice of the practice of banks in
conducting background checks on
borrowers and sureties. While a court is
not mandated to take judicial notice of this
practice under Section 1 of Rule 129 of
the Rules of Court, it nevertheless may do
so under Section 2 of the same Rule. The
latter Rule provides that a court, in its
discretion, may take judicial notice of
matters which are of public knowledge, or
ought to be known to judges because of
their judicial functions.
Thus, the Court has taken judicial
notice of the practices of banks and other
financial institutions. Precisely, it has
noted that it is their uniform practice,
before approving a loan, to investigate,
examine and assess would-be borrowers
credit standing or real estate[32] offered as
security for the loan applied for.
Second Issue:
Award of Damages
The individual respondents were
awarded moral and exemplary damages
as well as attorneys fees under Articles
19 to 21 of the Civil Code, on the basic
premise that the suit was clearly
malicious and intended merely to harass.
Article 19 of the Civil Code expresses
the fundamental principle of law on
human conduct that a person must, in the
exercise of his rights and in the
performance of his duties, act with justice,
give every one his due, and observe
honesty and good faith. Under this basic
postulate, the exercise of a right, though
legal by itself, must nonetheless be done
in accordance with the proper norm.
When the right is exercised arbitrarily,
unjustly or excessively and results in
damage to another, a legal wrong is
committed for which the wrongdoer must
be held responsible.[33]
To be liable under the abuse-of-rights
principle, three elements must concur: a)
a legal right or duty, b) its exercise in bad
faith, and c) the sole intent of prejudicing
or injuring another.[34] Needless to say,
absence of good faith[35] must be
sufficiently established.
Article 20 makes [e]very person who,
contrary to law, willfully or negligently
causes damage to another liable for
damages. Upon the other hand, held
liable for damages under Article 21 is one
who willfully causes loss or injury to
another in a manner that is contrary to
morals, good customs or public policy.
For damages to be properly awarded
under the above provisions, it is
necessary to demonstrate by clear and
convincing evidence[36] that the action
instituted by petitioner was clearly so
unfounded and untenable as to amount to
gross and evident bad faith.[37] To justify
an award of damages for malicious
prosecution, one must prove two
elements: malice or sinister design to vex
or humiliate and want of probable
cause.[38]
Petitioner was proven wrong in
impleading Spouses Guevara and Hong.
Beyond that fact, however, respondents
have not established that the suit was
so patently malicious as to warrant the
award of damages under the Civil Codes
Articles 19 to 21, which are grounded on
malice or bad faith.[39] With the
presumption of law on the side of good
faith, and in the absence of adequate
proof of malice, we find that petitioner
impleaded the spouses because it
honestly believed that the conjugal
partnerships had benefited from the
proceeds of the loan, as stated in their
Complaint and subsequent pleadings. Its
act does not amount to evident bad faith
or malice; hence, an award for damages
is not proper. The adverse result of an act
per se neither makes the act wrongful nor
subjects the actor to the payment of
damages, because the law could not
have meant to impose a penalty on the
right to litigate.[40]
For the same reason, attorneys fees
cannot be granted. Article 2208 of the
Civil Code states that in the absence of a
stipulation, attorneys fees cannot be
recovered, except in any of the following
circumstances:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has
compelled the plaintiff to litigate with third
persons or to incur expenses to protect his
interest;
(3) In criminal cases of malicious prosecution
against the plaintiff;
(4) In case of a clearly unfounded civil action
or proceeding against the plaintiff;
(5) Where the defendant acted in gross and
evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable
claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of
household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmens
compensation and employers liability laws;
(9) In a separate civil action to recover civil
liability arising from a crime;
(10) When at least double judicial costs are
awarded;
(11) In any other case where the court deems
it just and equitable that attorneys fees and
expenses of litigation should be recovered.
In the instant case, none of the
enumerated grounds for recovery of
attorneys fees are present.
WHEREFORE, this Petition
is PARTIALLY GRANTED. The assailed
Decision is AFFIRMED, but the award of
moral and exemplary damages as well as
attorneys fees is DELETED. No costs.
SO ORDERED.
CASE DIGEST:
Solid Bank Corp. vs Mindanao Ferroalloy Corp.
G.R. No. 153535
July 28, 2005
Doctrine: It is axiomatic that solidary liability cannot be
lightly inferred. Under Article 1207 of the Civil Code,
"there is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the
obligation requires solidarity."
Facts: Private respondents herein secured a loan to the
petitioner bank under the name of the respondent
corporation. In the course of the corporations
operation, it was not able to pay its obligation to the
petitioner and has to stop its operation. Petitioner bank
filed an action against the corporation together with its
principal officers for the collection of the loan they
acquired. The RTC ruled in favor of the bank petitioner
and ordering the respondent corporation to pay the
amount of loan plus interest. On appeal, the CA held the
decision of the RTC and ruled also that the private
respondents were not solidary liable to the petitioner.
Issue: Whether or not principal officers can be held
personally liable upon signing the contract of loan
under the name of the corporation?
Ruling: Basic is the principle that a corporation is vested
by law with a personality separate and distinct from
that of each person composing or representing it.
Equally fundamental is the general rule that corporate
officers cannot be held personally liable for the
consequences of their acts, for as long as these are for
and on behalf of the corporation, within the scope of
their authority and in good faith. The separate
corporate personality is a shield against the personal
liability of corporate officers, whose acts are properly
attributed to the corporation. Moreover, it is axiomatic
that solidary liability cannot be lightly inferred. Since
solidary liability is not clearly expressed in the
Promissory Note and is not required by law or the
nature of the obligation in this case, no conclusion of
solidary liability can be made.Furthermore, nothing
supports the alleged joint liability of the individual
petitioners because, as correctly pointed out by the two
lower courts, the evidence shows that there is only one
debtor: the corporation.
CASE #:3
[G.R. No. 109491. February 28, 2001]
ATRIUM MANAGEMENT
CORPORATION, petitioner,
vs. COURT OF APPEALS, E.T.
HENRY AND CO., LOURDES
VICTORIA M. DE LEON,
RAFAEL DE LEON, JR., AND HI-
CEMENT
CORPORATION, respondents.
[G.R. No. 121794. February 28, 2001]
LOURDES M. DE LEON, petitioner,
vs. COURT OF APPEALS,
ATRIUM MANAGEMENT
CORPORATION, AND HI-
CEMENT
CORPORATION, respondents.
DECISION
PARDO, J.:
What is before the Court are separate appeals
from the decision of the Court of Appeals,[1] ruling
that Hi-Cement Corporation is not liable for four
checks amounting to P2 million issued to E.T.
Henry and Co. and discounted to Atrium
Management Corporation.
On January 3, 1983, Atrium Management
Corporation filed with the Regional Trial Court,
Manila an action for collection of the proceeds of
four postdated checks in the total amount of P2
million. Hi-Cement Corporation through its
corporate signatories, petitioner Lourdes M. de
Leon,[2] 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 petitioner Atrium
Management Corporation for valuable
consideration. Upon presentment for payment, the
drawee bank dishonored all four checks for the
common reason payment stopped. Atrium, thus,
instituted this action after its demand for payment of
the value of the checks was denied.[3]
After due proceedings, on July 20, 1989, the
trial court rendered a decision ordering Lourdes M.
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
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
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
court ruled that: (1) Lourdes M. de Leon was not
authorized to issue the subject checks in favor of
E.T. Henry, Inc.; (2) The issuance of the subject
checks by Lourdes M. de Leon and the late Antonio
de las Alas constituted ultra vires acts; and (3) The
subject checks were not issued for valuable
consideration.[5]
At the trial, Atrium presented as its witness
Carlos C. Syquia who testified that in February
1981, 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. Carlos C. Syquia identified two letters,
dated February 6, 1981 and February 9, 1981 issued
by Hi-Cement through Lourdes M. de Leon, as
treasurer, confirming the issuance of the four checks
in favor of E.T. Henry in payment for petroleum
products.[6]
Respondent Hi-Cement presented as witness
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
RCBC checks as the postdated checks issued by Hi-
Cement to E.T. Henry upon instructions of Ms. de
Leon. She testified that E.T. Henry offered to give
Hi-Cement a loan which the subject checks would
secure as collateral.[7]
On July 20, 1989, the Regional Trial Court,
Manila, Branch 09 rendered a decision, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing
considerations, and plaintiff having proved its
cause of action by preponderance of evidence,
judgment is hereby rendered ordering all the
defendants except defendant Antonio de las
Alas to pay plaintiff jointly and severally the
amount of TWO MILLION (P2,000,000.00)
PESOS with the legal rate of interest from the
filling of the complaint until fully paid, plus
the sum of TWENTY THOUSAND
(P20,000.00) PESOS as and for attorneys fees
and the cost of suit.
All other claims are, for lack of merit
dismissed.
SO ORDERED.[8]
In due time, both Lourdes M. de Leon and Hi-
Cement appealed to the Court of Appeals.[9]
Lourdes M. de Leon submitted that the trial
court erred in ruling that she was solidarilly liable
with Hi-Cement for the amount of the check. Also,
that the trial court erred in ruling that Atrium was an
ordinary holder, not a holder in due course of the
rediscounted checks.[10]
Hi-Cement on its part submitted that the trial
court erred in ruling that even if Hi-Cement did not
authorize the issuance of the checks, it could still be
held liable for the checks. And assuming that the
checks were issued with its authorization, the same
was without any consideration, which is a defense
against a holder in due course and that the liability
shall be borne alone by E.T. Henry.[11]
On March 17, 1993, the Court of Appeals
promulgated its decision modifying the ruling of the
trial court, the dispositive portion of which reads:
Judgement is hereby rendered:
(1) dismissing the plaintiffs complaint as
against defendants Hi-Cement Corporation
and Antonio De las Alas;
(2) ordering the defendants E.T. Henry and
Co., Inc. and Lourdes M. de Leon, jointly
and severally to pay the plaintiff the sum of
TWO MILLION PESOS (P2,000,000.00)
with interest at the legal rate from the
filling of the complaint until fully paid, plus
P20,000.00 for attorneys fees.
(3) Ordering the plaintiff and defendants E.T.
Henry and Co., Inc. and Lourdes M. de
Leon, jointly and severally to pay defendant
Hi-Cement Corporation, the sum of
P20,000.00 as and for attorneys fees.
With cost in this instance against the
appellee Atrium Management
Corporation and appellant Lourdes
Victoria M. de Leon.
So ordered.[12]
Hence, the recourse to this Court.[13]
The issues raised are the following:
In G. R. No. 109491 (Atrium, petitioner):
1. Whether the issuance of the questioned
checks was an ultra vires act;
2. Whether Atrium was not a holder in due
course and for value; and
3. Whether the Court of Appeals erred in
dismissing the case against Hi-Cement and
ordering it to pay P20,000.00 as attorneys
fees.[14]
In G. R. No. 121794 (de Leon, petitioner):
1. Whether the Court of Appeals erred in
holding petitioner personally liable for the
Hi-Cement checks issued to E.T. Henry;
2. Whether the Court of Appeals erred in
ruling that Atrium is a holder in due course;
3. Whether the Court of Appeals erred in
ruling that petitioner Lourdes M. de Leon
as signatory of the checks was personally
liable for the value of the checks, which
were declared to be issued without
consideration;
4. Whether the Court of Appeals erred in
ordering petitioner to pay Hi-Cement
attorneys fees and costs.[15]
We affirm the decision of the Court of Appeals.
We first resolve the issue of whether the
issuance of the checks was an ultra vires act. The
record reveals that Hi-Cement Corporation issued
the four (4) checks to extend financial assistance to
E.T. Henry, not as payment of the balance of the
P30 million pesos cost of hydro oil delivered by
E.T. Henry to Hi-Cement. Why else would
petitioner de Leon ask for counterpart checks from
E.T. Henry if the checks were in payment for hydro
oil delivered by E.T. Henry to Hi-Cement?
Hi-Cement, however, maintains that the checks
were not issued for consideration and that Lourdes
and E.T. Henry engaged in a kiting operation to
raise funds for E.T. Henry, who admittedly was in
need of financial assistance.The Court finds that
there was no sufficient evidence to show that such
is the case. 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.
It is, however, our view that there is basis to
rule that 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.
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[16] 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.[17]
The next question to determine is whether
Lourdes M. de Leon and Antonio de las Alas were
personally liable for the checks issued as corporate
officers and authorized signatories of the check.
"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.[18]
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 payees
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.
The next issue is whether or not petitioner
Atrium was a holder of the checks in due
course. The Negotiable Instruments Law, Section
52 defines a holder in due course, thus:
A holder in due course is a holder who has
taken the instrument under the following
conditions:
(a) That it is complete and regular upon its
face;
(b) 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;
(c) That he took it in good faith and for value;
(d) 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.
In the instant case, the checks were crossed
checks and specifically indorsed for deposit to
payees account only.From the beginning, Atrium
was aware of the fact that the checks were all for
deposit only to payees account, meaning E.T.
Henry. Clearly, then, Atrium could not be
considered a holder in due course.
However, it does not follow as a legal
proposition that simply because petitioner Atrium
was not a holder in due course for having taken the
instruments in question with notice that the same
was for deposit only to the account of payee
E.T. Henry that it was altogether precluded from
recovering on the instrument. The Negotiable
Instruments Law does not provide that a holder not
in due course can not recover on the instrument.[19]
The disadvantage of Atrium in not being a
holder in due course is that the negotiable
instrument is subject to defenses as if it were non-
negotiable.[20] One such defense is absence or failure
of consideration.[21] We need not rule on the other
issues raised, as they merely follow as a
consequence of the foregoing resolutions.
WHEREFORE, the petitions are hereby
DENIED. The decision and resolution of the Court
of Appeals in CA-G. R. CV No. 26686, are hereby
AFFIRMED in toto.
No costs.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Puno,
Kapunan, and Ynares-Santiago, JJ., concur.