Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 116320 November 29, 1999

ADALIA FRANCISCO, petitioner,

vs.
COURT OF APPEALS, HERBY COMMERCIAL & CONSTRUCTION CORPORATION
AND JAIME C. ONG, respondents.

GONZAGA-REYES, J.:

Assailed in this petition for review on certiorari is the decision 1 of the Court of Appeals
affirming the decision 2rendered 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 the amount of
P515,493.89 for completed and 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 be discharged when the defects and deficiencies are 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
Francisco's 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 Ong's 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 HCCC's receivables from the GSIS. Assistant City Fiscal Ramon M. Gerona
gave credence to Francisco's 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, attorney's 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 attorney's 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 Francisco's 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 court's decision, but the Court of Appeals
dismissed IBAA's appeal for its failure to file its brief within the 45-day extension granted
by the appellate court. IBAA's 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 court's ruling, hence this
petition for review on certiorarifiled 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 Francisco's
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
Francisco's 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 petitioner's self-serving denials,
there is nothing in the records to rebut the NBI's 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 Ong's 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 Petitioner's 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
Ong's name, still, Francisco did not indorse the instrument in accordance with law.
Instead of signing Ong's 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 Ong's 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 court's 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 petitioner's 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 attorney's fees in the amount of P50,000.00, and the
award of P5,000.00 for litigation
expenses. 21

The appellate court's 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 fiscal's office of Quezon City which
disrupted HCCC's business operations. 23

WHEREFORE, we AFFIRM the respondent court's 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.

Melo, Vitug, Panganiban and Purisima, JJ., concur.

Footnotes

1 The case was docketed as CA-G.R. CV No. 18555 and the decision was
promulgated on June 29, 1992 by the Special Seventeenth Division composed of
Cancio C. Garcia (ponente), Serafin E. Camilon, and Cezar D. Francisco.

2 The decision was penned by Benjamin V. Pelayo and promulgated on February

16, 1988.

3 Docketed as Civil Case No. Q-24628.

4 1. Check No. 0756055, dated October 20, 1977, for P61,800.00 (Exhibit C).

2. Check No. 0756067, dated October 27, 1977, for P67,100.00 (Exhibit C-1).

3. Check No. 0756061, dated October 25, 1977, for P51,475.00 (Exhibit C-2).

4. Check No. 0756081, dated November 5, 1977, for P32,050.00 (Exhibit C-3).

5. Check No. 0756066, dated October 27, 1977, for P36,250.00 (Exhibit C-4).

6. Check No. 0756062, dated October 25, 1977, for P56,700.00 (Exhibit C-5).

7. Check No. 0756082, dated November 5, 1977, for P65,100.00 (Exhibit C-6).

5 RTC Records, 455-464.

6 Rollo, 19-20.

7 RTC Decision, 7-8; CA Decision, 10.

8 Exhibits E-1 to E-7.

9 Rollo, 29.
 10 Exhibits P-1, P-2.

11 Almeda vs. Court of Appeals, 269 SCRA 643 (1997); Fuentes vs. Court of
Appeals, 268 SCRA 703 (1997); People vs. Magallano, 266 SCRA 305 (1997).

12 Rollo, 30-33.

13 Act No. 2031, sec. 44.

14 Id., sec. 20. Liability of person signing as agent, and so forth. — Where the
instrument contains or a person adds to his signature words indicating that he
signs for or on behalf of a principal or in a representative capacity, he is not liable
on the instrument if he was duly authorized; but the mere addition of words
describing him as an agent, or as filling a representative character, without
disclosing his principal, does not exempt him from personal liability; Philippine
Bank of Commerce vs. Aruego, 102 SCRA 530 (1981).

15 Civil Code, art. 20.

16 RTC Records, 5.

17 234 SCRA 78 (1994).

18 263 SCRA 766 (1996).

19 275 SCRA 621 (1997).

20 286 SCRA 257 (1998).

21 Civil Code, art. 2208 (1); Tan Kapos vs. Masa, 134 SCRA 231 (1985).

22 People vs. Teodoro, 280 SCRA 384 (1997).

23 TSN, November 14, 1980, 51-53; Complaint, 4.

FACTS:
Petitioner and private respondent Ong, as presidents of their respective corporations,
entered into a contract where the latter shall render construction and land development
services and shall be paid on the basis of the completed houses and developed lands
delivered to and accepted by the former and the project financer. Years later, Ong
learned that seven checks drawn had been executed and signed payable to respondent
corporation for completedand deliver work under the contract. These checkswere
supposed to be delivered to him by petitioner but, instead, the latter forged his signature
at the back of the checks and deposited the same to her savings account.
ISSUE(S):
Whether or not petitioner was an agent of respondent Ong.

RULING:
NO. 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. Even assuming that Francisco was authorized by
HCCC to sign Ong’s name, still, Francisco did not indorse the instrument in accordance
with law. Instead of signing Ong’s 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.

http://www.thezamboanguena.com/2018/01/francisco-v-ca-g-r-no-116320-29-nov-1999-319-
scra-354/

THIRD DIVISION

[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. [23] In contracts, a fraud
known 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.
Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia, JJ., concur.
* Her first name is not specified in title of the Petition, but is found on page 1 of the
Spouses Memorandum. Rollo, p. 222.
** The name of Mr. Guevaras spouse is not found in the records.
[1] Rollo, pp. 18-42.
[2] Penned by Justice Romeo J. Callejo Sr. (then chair, Twelfth Division, and now a
member of this Court) and concurred in by Justices Remedios Salazar-Fernando
and Josefina Guevara-Salonga (members).
[3] Supra, p. 34.
[4] CA Decision, pp. 25-26; id., pp. 31-32.
[5] Excerpted from the CA Decision, pp. 1-10; rollo, pp. 7-16. Citations omitted.
[6] The Petition was deemed submitted for decision on June 28, 2004, upon the Courts
receipt of the Memorandum of Respondents Teresita Cu and Guevara, signed by
Atty. Antonio C. Pacis. The Memorandum of Respondent Spouses Jong-Won
Hong and Soo-ok Kim Hong, signed by Attys. Constantine G. Agagan and Mario
R. Frez, was filed on June 21, 2004. Petitioners Memorandum, signed by Atty.
Maximino Z. Banaga Jr., was received by the Court on June 8, 2004.
[7] Petitioners Memorandum, pp. 10-11; rollo, pp. 202-203. Original in uppercase.
[8] Larena v. Mapili, 408 SCRA 484, 488, August 7, 2003; Bordalba v. CA, 425 Phil. 407,
415, January 25, 2002; Roca v. CA, 350 SCRA 414, 420, January 29, 2001; Baas
v. CA, 382 Phil. 144, 154, February 10, 2000.
[9] They are the stockholders or members of a corporation. See Francisco v. Mejia, 415
Phil. 153, 165, August 14, 2001; Consolidated Bank and Trust Corporation
(Solidbank) v. CA, 356 SCRA 671, 682, April 19, 2001; Reahs Corp. v. National
Labor Relations Commission, 337 Phil. 698, 706, April 15, 1997.
[10] Being a juridical entity, a corporation acts through its board of directors and/or officers
and agents. See Monfort Hermanos Agricultural Development Corp. v. Monfort III,
434 SCRA 27, 31, July 8, 2004; Firme v. Bukal Enterprises and Development
Corporation, 414 SCRA 190, 208, October 23, 2003; Peoples Aircargo and
Warehousing Co., Inc. v. CA, 357 Phil. 850, 863, October 7, 1998.
[11] Francisco v. Mejia, supra, pp. 166-167; Bogo-Medellin Sugarcane Planters
Association, Inc. v. NLRC, 357 Phil. 110, 127, September 25, 1998.
[12] Consolidated Bank and Trust Corporation (Solidbank) v. CA, supra.
[13] 238 SCRA 14, 19, November 7, 1994, per Vitug, J. (cited in FCY Construction Group,
Inc. v. CA, 381 Phil. 282, 290, February 1, 2000).
[14] Industrial Management International Development Corp. v. NLRC, 387 Phil. 659, 666,
May 11, 2000; Smith, Bell & Co., Inc. v. CA, 335 Phil. 194, 203, February 6,
1997; Sesbreo v. CA, 222 SCRA 466, 481, May 24, 1993.
[15] PH Credit Corporation v. CA, 421 Phil. 821, 832, November 22, 2001; Inciong Jr. v.
CA, 327 Phil. 364, 373, June 26, 1996; Quiombing v. CA, 189 SCRA 325, 328,
August 30, 1990; The Imperial Insurance, Inc. v. David, 218 Phil. 298, 302,
November 21, 1984.
[16] Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35, 47, January 4, 2002; Del
Rosario v. Bonga, 350 SCRA 101, 108, January 23, 2001; Sanchez v. CA, 345
Phil. 155, 186, September 29, 1997.
[17] CA Decision (referring to Exhibit A and Records, p. 595), p. 20; rollo, p. 26.
[18] Ouano v. CA, 446 Phil. 690, 708, March 4, 2003; BPI Express Card Corporation v.
Olalia, 423 Phil. 593, 599, December 14, 2001; Geraldez v. CA, 230 SCRA 320,
331, February 23, 1994.
[19] See Associated Bank v. Tan, GR No. 156940, December 14, 2004, p. 10 (citing BPI
v. Casa Montessori Internationale, 430 SCRA 262, 293, May 28, 2004); Philippine
Commercial and International Bank v. CA, 350 SCRA 446, 472, January 29,
2001; Bank of the Philippine Islands v. Intermediate Appellate Court, 206 SCRA
408, 412-413, February 21, 1992.
[20] Lipat v. Pacific Banking Corporation, 450 Phil. 401, 410, April 30, 2003; Francisco v.
Mejia, supra, pp. 165-166; Francisco Motors Corp. v. CA, 368 Phil. 374, 384, June
25, 1999; Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347, 355, August 17,
1976.
[21] Marubeni Corporation v. Lirag, 415 Phil. 29, 39, August 10, 2001.
[22] Petitioners Memorandum, pp. 24-25; rollo, pp. 216-217.
[23] Maestrado v. CA, 384 Phil. 418, 434, March 9, 2000; Caram Jr. v. Laureta, 103 SCRA
7, 18, February 24, 1981.
[24] Article 1338 of the Civil Code refers to this kind of fraud. See also Geraldez v.
CA, supra, p. 336.
[25] Samson v. CA, 238 SCRA 397, 404, November 25, 1994. See also Tolentino, Civil
Code of the Philippines, 1991 ed., Vol. IV, p. 506.
[26] Article 1344 of the Civil Code.
[27] Caram Jr. v. Laureta, supra; Tolentino, supra.
[28] Inciong Jr. v. CA, supra, p. 371.
[29] Cojuangco Jr. v. CA, 369 Phil. 41, 55, July 2, 1999; Philippine Air Lines, Inc. v. NLRC,
362 Phil. 197, 204, February 2, 1999; Samson v. CA, supra.
[30] Ibid.
[31] The first indebtedness was for P3. 2 million, which was granted by the bank to the
corporation on May 21, 1991, while the second loan of P1.8 million was granted
on May 28, 1991.
[32] Heirs of Manlapat v. CA, GR No. 125585, June 8, 2005, pp. 25-26; Home Bankers
Savings & Trust Co. v. CA, GR No. 128354, April 26, 2005, p. 17; Rural Bank of
Sta. Ignacia Inc. v. Dimatulac, 449 Phil. 800, 812, April 29, 2003; Cruz v. Bancom
Finance Corporation, 429 Phil. 225, 240, March 19, 2002.
[33] Metropolitan Waterworks and Sewerage System v. Act Theater, Inc., 432 SCRA 418,
422, June 17, 2004; Rellosa v. Pellosis, 414 Phil. 786, 792, August 9, 2001; Sea
Commercial Company, Inc. v. CA, 377 Phil. 221, 229, November 25, 1999.
[34] Ibid.
[35] In University of the East v. Jader, 382 Phil. 697, 705, February 17, 2000, good faith
was defined as an honest intention to abstain from taking undue advantage of
another, even though the forms and technicalities of the law, together with the
absence of all information or belief of facts, would render the transaction un-
conscientious.
[36] Audion Electric Co. v. NLRC, 367 Phil. 620, 635, June 17, 1999.
[37] Savellano v. Northwest Airlines, 405 SCRA 416, 428-429, July 8, 2003; Cervantes v.
CA, 363 Phil. 399, 407, March 2, 1999. See also Article 2220 of the Civil Code.
[38] Inhelder Corporation v. CA, 122 SCRA 576, 584, May 30, 1983.
[39] ABS-CBN Broadcasting Corp. v. CA, 361 Phil. 499, 531, January 21, 1999.
[40] ABS-CBN Broadcasting Corp. v. CA, supra, p. 529; BPI Family Savings Bank v.
Manikan, 443 Phil. 463, 468, January 16, 2003; R & B Surety & Insurance Co., Inc.
v. Intermediate Appellate Court, 129 SCRA 736, 744-745, June 22, 1984; Inhelder
Corporation v. CA, supra.

FACTS:
Mindanao Ferroalloy corporation is the fruit of a joint venture agreement between
a Filipino corporation and Korean Corporation. In its operations,
its liabilities ballooned over its assets that it had to secure loans from petitioner
Solidbank. The loans were later consolidated and restructured, evidenced by a
promissory note. The promissory note was signed by Cu and Hong, both officers of the
corporation. The corporation, through the same
officers also executed a deed of assignment. Thereafter, the corporation
stopped its operations and the loan was left unpaid. The bank was
prompted to file a complaint against the corporation, and with it,
impleading the officers who signed the agreement and promissory notes. The trial
court held in favor of the bank but didn't adjudge liability of the officers. Both the trial
court and CA held that there was no solidary liability on the part of the officers
impleaded by the bank.

HELD:
Though Hong and Cu signed above the “maker/borrower” and the printed name of the
corporation, without the word “by” preceding their signatures, the fact that they signed in
their personal capacities is negated by the facts
that name and address of the corporation also appeared on the space
provided for in the “maker/borrower” and their signatures only appeared once
when it should be twice if indeed it was in their personal
capacities. Further, they didn't sign on the portion allocated for the co-
maker, and there was also indicia of it being signed as authorized representatives.
https://batasnatin.com/law-library/mercantile-law/jurisprudence1/943-solidbank-corporation-
v-mindanao-ferroalloy-corporation-gr-153535-july-28-2005.html

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.

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 attorney's 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
attorney's 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 plaintiff's 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 attorney's 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 attorney's 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 attorney's 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

attorney's 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 viresact.

"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 payee's account and not to be further negotiated. What is more, the confirmation
letter contained a clause that was not true, that is, "that the checks issued to E.T. Henry
were in payment of Hydro oil bought by Hi-Cement from E.T. Henry". Her negligence
resulted in damage to the corporation. Hence, Ms. de Leon may be held personally
liable therefor.1âwphi1.nêt

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 payee's account only. From the beginning, Atrium was aware of the fact that
the checks were all for deposit only to payee's 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., Puno, Kapunan, and Ynares-Santiago, JJ., concur.

Footnotes:
1In CA-G. R. CV No. 26686, promulgated on March 17, 1973, Francisco, C., J.,
ponente, Ramirez and Gutierrez, JJ., concurring.
2 In G. R. No. 121794.
3Consolidated Memorandum, G. R. No. 121794, Rollo, pp. 191-226, at pp. 192-
193.
4Original Record, Decision, Judge Edilberto G. Sandoval, presiding, pp. 356-
362.
5Petition, Annex "C", in G. R. No. 109491, Rollo, pp. 319-339 and Petition,
Annex "A", in G. R. No. 121794, Rollo, pp. 30-49.
6 TSN, September 30, 1985, pp. 6-19.
7 TSN, January 29, 1988, pp. 15-16.
8Original Record, Decision, Judge Edilberto G. Sandoval, presiding, pp. 356-
362.
9Ibid., Notice of Appeal, Lourdes, p. 366, and Notice of Appeal Hi-Cement, p.
365.
10 CA Rollo, Defendant-Appellant Lourdes M. De Leon's Brief, pp. 10-10N.
11 Ibid., Defendant Appellant's Brief, pp. 23C-23II.
12
CA Rollo, Decision, pp. 78-99, Francisco, C., J., ponente, Ramirez and
Gutierrez, JJ., concurring.
13G. R. No. 109491, Petition filed on April 13, 1993, Rollo, pp. 3-18; G. R. No.
121794, Petition filed on October 20, 1995, Rollo, pp. 10-28. On January 31,
2000, we gave due course to the petition. G. R. No. 109491, Rollo, pp. 244-245;
G. R. No. 121794, Rollo, pp. 152-153.
14 Petition, G. R. No. 1109491, Rollo, pp. 10-16.
15 Petition, G. R. No. 121794, Rollo, p. 16.
16Republic v. Acoje Mining Co., Inc., 117 Phil. 379, 383 [1963]; Corporation
Code Sec. 45.
17 Republic v. Acoje Mining Co., Inc., supra, Note 16, at pp. 383-384.
18 FCY Construction Group, Inc. v. Court of Appeals, G. R. No. 123358, February
1, 2000, citing Tramat Mercantile, Inc. v. Court of Appeals, 238 SCRA 14, 18-19
[1994]; Equitable Banking Corporation v. NLRC, 339 Phil. 541, 566 (1997).
19 Chan Wan v. Tan Kim and Chen So, 109 Phil. 706 (1960).
20State Investment House v. Intermediate Appellate Court, 175 SCRA 310, 317
(1989).
21 Negotiable Instruments Law, Sec. 28.
Corporate Law Case Digest: Atrium Management Corp. V. CA (2001)

G.R. No. 109491. February 28, 2001.

Lessons Applicable: Ultra Vires Act, When corporate officers may be held personally liable
(Corporate Law)

FACTS:

 Hi-Cement Corporation through its corporate signatories:

 petitioner Lourdes M. de Leon - treasure
 late Antonio de las Alas - Chairman
issued 4 checks in favor of E.T. Henry and Co. Inc., as payee.

 E.T. Henry approached Atrium for financial assistance, offering to discount the 4 checks
 Upon presentment for payment by Atrium, the drawee bank dishonored all checks reasoning
payment stopped.
 Atrium, instituted this action after its demand for payment of the value of the checks was
denied.
 RTC: Ordered Lourdes M. de Leon, her husband Rafael de Leon, E.T. Henry and Co., Inc.
and Hi-Cement Corporation to pay Atrium, jointly and severally, the value of all checks, plus
interest and attorneys fees
 CA: Absolved Hi-Cement from liability on the basis that the issuance of the signatories were
ultra vires acts therefore the checks were not issued for a valuable consideration
ISSUE:

1. W/N the issuance of the checks were ultra vires act. -NO
2. W/N 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. - Ms. de Leon may be
held personally liable

HELD:

1.

 Act of issuing the checks - within the ambit of a valid corporate act, for it was for securing a
loan to finance the activities of the corporation ≠ ultra vires act
 ultra vires act - 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
 ultra vires is distinguished from an illegal act for the former is merely voidable which may
be enforced by performance, ratification, or estoppel, while the latter is void and cannot be
validated.
2. Ms. de Leon may be held personally liable therefor.

 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
a. He assents:

i. to a patently unlawful act of the corporation

ii. for bad faith or gross negligence in directing its affairs

iii. for conflict of interest, resulting in damages to the corporation, its stockholders or other
persons

b. He consents to the issuance of watered down stocks or who, having knowledge thereof,
does not

forthwith file with the corporate secretary his written objection thereto;

c. He agrees to hold himself personally and solidarily liable with the corporation; or

d. He is made, by a specific provision of law, to personally answer for his corporate action

 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: in payment of
Hydro oil bought by Hi-Cement from E.T. Henry.
 Her negligence resulted in damage to the corporation.
http://www.philippinelegalguide.com/2011/06/corporate-law-case-digest-atrium_5126.html

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

109491,February 28, 2001.

Facts:
Hi-Cement Corporation through its corporate signatories, petitioner Lourdes M.de
Leon, treasurer, and the late Antonio de las Alas, Chairman, issued checks infavor of
E.T. Henry and Co. Inc., as payee. E.T. Henry and Co., Inc., in turn,endorsed the four
checks to Atrium for valuable consideration. Enrique Tan ofE.T. Henry approached
Atrium for financial assistance, offering to discount fourRCBC checks in the total
amount of P2 million, issued by Hi-Cement in favor ofE.T. Henry. Atrium agreed to
discount the checks, provided it be allowed toconfirm with Hi-Cement the fact that the
checks represented payment forpetroleum products which E.T. Henry delivered to Hi-
Cement. Upon presentmentfor payment, the drawee bank dishonored all four checks for
the common reason
“payment

stopped”.
As a result thereof, Atrium filed an action for collection of theproceeds of 4 PDC in the
total amount of 2M with RTC Manila. Judgment wasrendered in favor of Atrium
ordering Lourdes and Rafael de Leon, E.T. Henry andCo., and Hi-Cement to pay Atrium
the said amount plus interest and attorneysfees. CA absolved Hi-cement Corporation
from liability. It also ruled that sinceLourdes was not authorized to issue the subjects
checks in favor of E.T. HenryInc., the said act was ultra vires.
Issue
: Whether the issuance of the questioned checks was an
ultra vires
act;
Ruling
: Yes. An
ultra vires act is one committed outside the object for which a corporation is created as
defined by the law of its organization and therefore beyond the power conferred upon it
by law. The term “ultra vires” is “distinguished from an illegal act for the former is
merely voidable which may be enforced by performance, ratification, or estoppel, while
the latter is void and cannot be validated. Personal liability of a corporate director,
trustee or officer along (although not necessarily) with the corporation may so validly
attach, as a rule, only when:

1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or
gross negligence in directing its affairs, or (c) for conflict of interest, resulting in
damages to the corporation, its stockholders or other persons;
2. He consents to the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection
thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate
action. In the case at bar, Lourdes M. de Leon and Antonio de las Alas as treasurer and
Chairman of Hi-Cement were authorized to issue the checks. However, Ms. De Leon was
negligent when she signed the confirmation letter requested by Mr. Yap of Atrium and
Mr. Henry of E.T. Henry for the rediscounting of the crossed checks issued in favor of
E.T. Henry. She was aware that the checks were strictly endorsed for deposit only to the
payee’s account and not to be further negotiated. What is more, the confirmation letter
contained a clause that was not true, that is, “that the checks issued to E.T. Henry were
in payment of Hydro oilbought 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
https://www.scribd.com/document/392088350/1-Atrium-Management-Corporation-v-Court-
of-Appeals-G-R-No-109491-February-28-2001-Case-Digest