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
- 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:
- W/N the issuance of the checks were ultra vires act. -NO
- 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
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.