G.R. No. 176897 ; December 11, 2013
Advance Paper Corporation and George Haw, in his capacity as President of Advance Paper Corporation, Petitioners, vs. Arma Traders Corporation, Manuel Ting, Cheng Gui and Benjamin Ng, Respondents. x————————————————-x Antonio Tan and Uy Seng Kee Willy, Respondents.

FACTS

Petitioner Advance Paper Corporation supplied paper products to respondent Arma Traders Corporation on credit and extended three loans to it, based on the representations of its officers, respondents Antonio Tan and Uy Seng Kee Willy. As payment, Arma Traders, through Tan and Uy, issued 82 postdated checks. All checks were dishonored upon presentment. Advance Paper filed a collection suit against Arma Traders and its officers.
Arma Traders, through its other officers (respondents Ting, Gui, and Ng), denied liability. They claimed the sales were simulated, as no deliveries occurred during the relevant period. They further argued the loans were ultra vires acts of Tan and Uy, executed without board approval and for personal benefit, thus not binding the corporation. They characterized the transactions as an illegal check rediscounting scheme.

ISSUE

Whether respondent Arma Traders Corporation is liable to petitioner Advance Paper Corporation for the value of the dishonored checks representing unpaid purchases and loans.

RULING

Yes, Arma Traders is liable. The Supreme Court reversed the Court of Appeals and reinstated the trial court’s decision. The legal logic rests on the doctrine of apparent authority and the corporation’s failure to repudiate the transactions within a reasonable time.
Tan and Uy, as President and Treasurer, had been dealing with Advance Paper on behalf of Arma Traders for 14 years, establishing a customary course of business. This clothed them with apparent authority to transact, making their acts binding on the corporation. A corporation is bound by the acts of its officers within the scope of their authority, even if such acts are later claimed to be unauthorized. Advance Paper, as a long-time supplier, had the right to rely on this apparent authority.
Furthermore, the defense of ultra vires was unavailing. The corporation accepted the benefits of the transactions—the proceeds of the loans were used to pay its other suppliers. By retaining these benefits and failing to immediately repudiate the officers’ acts upon discovery, Arma Traders ratified the transactions. The belated claim of simulation and lack of delivery was contradicted by the sales invoices and the corporation’s own admission that it used loan proceeds for corporate purposes. Consequently, Arma Traders was estopped from denying its obligation to pay Advance Paper.