Atrium Management Corporation vs.

CA
Gr.No. 109491, 28 February 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 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 an action after its
demand for payment of the value of the checks was denied.

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.

Lourdes M. de Leon claimed she is not solidarilly liable with Hi-Cement for the
amount of the check and that Atrium was an ordinary holder, not a holder in due
course of the rediscounted checks.

Issue:

Whether de Leon may be held liable.

Held:

Yes. Due to negligence. 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.
 "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: 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; 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; He agrees to hold himself personally
and solidarily liable with the corporation; or He is made, by a specific provision of law,
to personally answer for his corporate action.

However, as to the claim of Atrium, it cannot be upheld because it is not a

holder of the check in due course due to the fact that the same was crossed in favor of
E.T. Henry, and therefore only payable to the latters account.

ARB Construction vs. CA

Gr. No. 126554, 31 May 2000

Facts:

On 15 August 1993, TBS Security and Investigation Agency (TBSS) entered into
two (2) Service Contracts with ARBC wherein TBSS agreed to provide and post security
guards in the five (5) establishments being maintained by ARBC. The contract shall be
effective for one (1) year and shall be considered renewed for the same period unless
the same is terminated after a notice is given to the parties thirty (30) days in advance.

In a letter dated 23 February 1994 ARBC informed TBSS of its desire to

terminate the Service Contracts effective thirty (30) days after receipt of the letter.
Also, in a letter dated 22 March 1994, ARBC through its Vice President for Operations,
Mark Molina, informed TBSS that it was replacing its security guards with those of
Global Security Investigation Agency (GSIA).

In response to both letters, TBSS informed ARBC that the latter could not
preterminate the Service Contracts nor could it post security guards from GSIA as it
would run counter to the provisions of their service contracts. Nevertheless, Molina
decreased the security guards to only one (1) as a right provided under the service
contract. TBSS thereafter filed a case for breach of contract against ARBC and Mark
Molina.
Issue:

Whether Mark Molina should be held liable together with ARBC.

Held:

No. He merely acted within his capacity as an officer of the corporation. It is

basic that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to
which it may be related. As a general rule, a corporation may not be made to answer
for acts or liabilities of its stockholders or those of the legal entities to which it may be
connected and vice versa. However, the veil of corporate fiction may be pierced when it
is used as a shield to further an end subversive of justice; or for purposes that could
not have been intended by the law that created it; or to defeat public convenience,
justify wrong, protect fraud, or defend crime; or to perpetuate deception; or as an alter
ego, adjunct or business conduit for the sole benefit of the stockholders.

Thus, Molina could not be held jointly and severally liable for any obligation
which petitioner ARBC may be held accountable for, absent any proof of bad faith or
malice on his part. It is also incorrect on the part of the Court of Appeals to conclude
that there was a sufficient cause of action against Molina as to make him personally
liable for his actuations as Vice President for Operations of ARBC.

DBP vs. CA
Gr. No. 126200, 16 August 2001

Facts:

Marinduque Mining entered into 3 mortgage agreements with PNB and DBP
involving its real properties located in Surigao del Norte, Negros Occidental, and Rizal,
as well as its equipments located therein, between July 1981 and April 1984.
Marinduque failed to pay its loans, causing the foreclosure of the said mortgages. PNB
and DBP thereafter gained control of the said properties.

In the meantime, between July 16, 1982 to October 4, 1983, Marinduque

Mining purchased and caused to be delivered construction materials and other
merchandise from Remington Industrial Sales Corporation. The purchases remained
unpaid as of August 1, 1984 when Remington filed a complaint for a sum of money
and damages against Marinduque Mining for the value of the unpaid construction
materials and other merchandise purchased by Marinduque Mining, as well as
interest, attorneys fees and the costs of suit.

Remingtons original complaint was amended to include PNB, DBP, Maricalum

Mining Corporation and Island Cement Corporation as co-defendants. Remington
asserted that Marinduque Mining, PNB, DBP, Nonoc Mining, Maricalum Mining and
Island Cement must be treated in law as one and the same entity by disregarding the
veil of corporate fiction since the personnel, key officers and rank-and-file workers and
employees of co-defendants NMIC, Maricalum and Island Cement creations of co-
defendants PNB and DBP were the personnel of co-defendant MMIC such that
practically there has only been a change of name for all legal purpose and intents.

Issue:

Whether the takeover of PNB and DBP over Marinduque Mining is in bad faith.

Held:

No. Their actions are mandated under the law. Where the corporations have
directors and officers in common, there may be circumstances under which their
interest as officers in one company may disqualify them in equity from representing
both corporations in transactions between the two. Thus, where one corporation was
insolvent and indebted to another, it has been held that the directors of the creditor
corporation were disqualified, by reason of self-interest, from acting as directors of the
debtor corporation in the authorization of a mortgage or deed of trust to the former to
secure such indebtedness In the same manner that when the corporation is insolvent,
its directors who are its creditors cannot secure to themselves any advantage or
preference over other creditors. They cannot thus take advantage of their fiduciary
relation and deal directly with themselves, to the injury of others in equal right.

Directors of an insolvent corporation, who are creditors of the company, cannot

secure to themselves any preference or advantage over other creditors in the payment
of their claims. It is not good morals or good law. The governing body of officers thereof
are charged with the duty of conducting its affairs strictly in the interest of its existing
creditors, and it would be a breach of such trust for them to undertake to give any one
of its members any advantage over any other creditors in securing the payment of his
debts in preference to all others. When validity of these mortgages, to secure debts
upon which the directors were endorsers, was questioned by other creditors of the
corporation, they should have been classed as instruments rendered void by the legal
principle which prevents directors of an insolvent corporation from giving themselves a
preference over outside creditors.