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[Digest maker]

HI-CEMENT CORP. (P) vs. INSULAR BANK OF ASIA AND AMERICA (later PCIB, then EQUITABLE) (R)
[GR NO. 132403]
E.T. HENRY & CO. and SPS. TAN vs. INSULAR BANK OF ASIA AND AMERICA (later PCIB, then
EQUITABLE) (R)
[GR NO. 132419] | [SEPTEMBER 28, 2007] | [CORONA, J.]

FACTS
 Sps. Tan were the controlling stockholders of ET Henry (ETH) (engaged in business of processing and
distributing bunker fuel). Among their customers are Hi-Cement, Riverside, and Kanebo. These issued
postdated checks to ET Henry for their purchases.
 1979 – R granted ETH a credit facility known as "Purchase of Short Term Receivables." ETH was able
to encash, with pre-deducted interest, the postdated checks of its clients. In other words, E.T. Henry
and R were into "re-discounting" of checks. For every transaction, R required ETH y to execute a
promissory note and a deed of assignment bearing the conformity of the client to the re-discounting.
 1979 – 1981 – no problem. BUT on Feb. 1981, checks of Hi-Cement (crossed and bore the restriction
“deposit to payee’s account only”) were dishonored. Also Riverside and Kanebo’s checks.
 R filed complaint for sum of money in CFI Rizal against all of the petitioners, and Riverside
(P115,312.50) and Kanebo (P5.811750M). For Hi-Cement, 10M. Also sought 1.6M and 4.9M from ETH
and Tans as deficiency after foreclosure of ETH’s property.
 Hi-Cement’s Answer – 1.) drawers of postdated checks failed to honor them due to the adverse
economic conditions prevailing at the time respondent presented them for payment; 2.) extrajudicial
sale of mortgaged property was void due to inadequacy of bid price. 3.) loans were subjected to a
usurious interest rate of 21% per annum.
 Riverside and Kanebo – we are not privy to the re-discounting arrangement between R and ETH.
 TC ruled in favor of R. All Ps are jointly and severally liable to pay damages represented by face value
of postdated checks.
 CA affirmed.
 GR 132403 – Hi-Cement disclaims liability for postdated checks because 1.) did not authorize their
issuance. 2.) R not holder in due course. 3.) no basis for LC ruling it was solidarily liable for Riverside
and Kanebo’s checks.
 132419 – ETH and Tans – LC erred in 1.) applying doctrine of piercing corporate veil in making Tans
solidarily liable with ETH 2.) not ruling on cross and counterclaims 3.) not declaring foreclosure of
Sucat property as void due to inadequacy of bid price.

ISSUE
1. YUN ISSUES YUN NASA TAAS, YUN NASA TABI NG GR NUMBERS.

RATIO
132403 – R45 petitions is usually only for errors of law. TC findings of fact, when affirmed by CA
are generally binding unless there was a misapprehension of facts or inferences drawn from them
are manifestly mistaken, like the case at bar.
1. TC and CA concluded Hi-Cement authorized its GM and treasurer to issue the postdated checks.
Hi-Cement was estopped from denying such authority since it never objected to the signatories'
issuance of all previous checks to E.T. Henry which the latter, in turn, was able to re-discount with
respondent. SC agrees.
 2. Sec. 191 of NIL states "Holder" means the payee or indorsee of a bill or a note, or the person who
is in possession of it, or the bearer thereof. Sec. 52 provides who is a holder in due course (YUN
PINAPAMEMORIZE). In case at bar, last 2 not present.
BCCF vs. CA – holder of crossed check not holder in due course. In there, SIHI was not a holder in
due course because in crossed checks: (a) the check may not be encashed but only deposited in the
bank; (b) the check may be negotiated only once — to one who has an account with a bank [and];
(c) the act of crossing the checks serves as warning to the holder that the check has been issued
for a definite purpose so that he must inquire if he has received the check pursuant to that
purpose, otherwise, he is not a holder in due course.
Atrium Management vs. CA also involved ETH and HI-Cement – Atrium (with which checks were
re-discounted) not holder in due course. Specifically indorsed for deposit to payee’s account only.
Cannot be holder in due course.
R – we acted in good faith when we accepted and discounted Hi-Cement’s postdated checks from
ETH. SC SAYS NO – R was aware checks were crossed and bore restrictions that they were for
deposit to payee’s account only, they could not be further negotiated to it. Disregarded a telling
sign of irregularity (GM did not acquiesce as only Treasurer’s signature was on deed of
assignment). Bank should exercise extraordinary diligence, imbued with public interest. Like BCCF
– holder is declared guilty of gross negligence amounting to legal absence of good faith.
Hi-cement cannot be made liable for the checks. Atrium Case said that drawer of postdated
crossed checks was not liable to the holder deemed not a holder in due course. But NIL does not
absolutely bar a holder who is not a holder in due course from recovering on the checks. In both,
we ruled that it may recover from the party who indorsed encashed the checks "if the latter has no
valid excuse for refusing payment." ETH should pay since it had no justification to refuse payment.

3. Not solidarily liable with Riverside and Kanebo. Hi-Cement had nothing to do with the checks of
these two. But fallo really intended for each corporation to be liable solidarily with E.T. Henry
and/or the spouses Tan for the respective values of their checks. NCC 1207-1208 also says
solidary liability cannot be presumed. BUT MOOT since HI-Cement not liable.

132419
1. It is only when the fiction or notion of legal entity is used to defeat public convenience, justify
wrong, perpetuate fraud or defend crime that the law will shred the corporate legal veil and
regard it as a mere association of persons. First, TC did not explain why doctrine was relevant to
this case. CA failed to provide the basis for its ruling that E.T. Henry and the spouses Tan
defrauded respondent. It did not also state what act constituted the fraud. Fraud is an allegation of
fact that demands clear and convincing evidence.
Second, there must be proof that the spouses Tan: (1) had control or complete domination of E.T.
Henry's finances and that the latter had no separate existence with respect to the act complained
of; (2) used such control to commit fraud or wrong and (3) the control was the proximate cause of
the loss or injury complained of by respondent. The records of this case do not show that these
elements were present.

2. SC says NO. First, ETH and Tans failed to implead Hi-Cement, Riverside, and Kanebo as parties in
case at bar. Rule 3 states every action, including a counterclaim (or a cross-claim), must be
prosecuted or defended in the name of the real party in interest. The term "defendant" may refer
to the original defending party, the defendant in a counterclaim, the cross-defendant or the third
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(fourth, etc.) party defendant. Hence, for this technical lapse, we are constrained not to pass on
E.T. Henry's and the spouses Tan's cross-claims
Second, ETH and Tans filed counterclaim on the basis of the alleged void foreclosure proceedings.
Not void as explained below.

3. Mere inadequacy, unless shocking to the conscience, is not sufficient. Furthermore, in the absence
of any irregularity in the foreclosure proceeding or proof that it was carried out without strict
observance of the procedure, we will continue to assume its regularity. Here, disparity in bid price
was merely alleged.

DECISION
 CA decision affirmed with modification. Hi-cement discharged from liability. Only ETH
should pay R.