G.R. No. 109491 & G.R. No. 121794 . 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. LOURDES M. DE LEON, petitioner, vs. COURT OF APPEALS, ATRIUM MANAGEMENT CORPORATION, AND HI-CEMENT CORPORATION, respondents.

FACTS

Hi-Cement Corporation, through its treasurer Lourdes M. de Leon and its chairman, issued four postdated checks totaling P2 million in favor of E.T. Henry and Co., Inc. E.T. Henry subsequently endorsed and discounted these checks to Atrium Management Corporation. Upon presentment, the drawee bank dishonored all checks due to “payment stopped.” Atrium then filed a collection suit against Hi-Cement, its officers, and E.T. Henry. The trial court held Hi-Cement, Lourdes de Leon, her husband, and E.T. Henry jointly and severally liable to Atrium.
On appeal, the Court of Appeals modified the decision. It absolved Hi-Cement from liability, ruling that the issuance of the checks by its officers was an ultra vires act not authorized for corporate purposes and that the checks were issued without valuable consideration. It upheld the liability of E.T. Henry and Lourdes de Leon, ordering them to pay Atrium jointly and severally. Both Atrium and de Leon elevated the case to the Supreme Court.

ISSUE

The primary issues were: (1) whether Hi-Cement Corporation is liable on the checks; (2) whether Atrium is a holder in due course; and (3) whether Lourdes de Leon is personally liable.

RULING

The Supreme Court affirmed the Court of Appeals’ decision. On Hi-Cement’s liability, the Court ruled that the issuance of the checks was an ultra vires act. The evidence showed the checks were issued not for payment of delivered petroleum products, but as security for a loan from E.T. Henry to Hi-Cementa transaction outside Hi-Cement’s corporate purpose as a cement manufacturer. An ultra vires act, being unauthorized and beyond corporate powers, does not bind the corporation.
On Atrium’s status, the Court found it was not a holder in due course. The checks bore the restrictive endorsement “For Deposit Only Pay to the order of RCBC, Buendia Ave., Branch, Acct. of E.T. Henry & Co., Inc.” Atrium took the checks with notice of this restriction, which precluded it from becoming a holder in due course. Consequently, Atrium’s rights were subject to personal defenses available against the original payee, such as absence of consideration.
Since the checks were issued without consideration (as security, not for value), this defense was valid against Atrium, absolving Hi-Cement. However, Lourdes de Leon, as a corporate officer who personally issued the checks without corporate authority, was correctly held personally liable for the resulting obligation to Atrium. The award of attorney’s fees to Hi-Cement was also sustained.