CORPORATION LAW | 1

ADVANCE PAPER CORP. & GEORGE HAW V. ARMA TRADERS CORP., MANUEL TING, CHENG GUI, & BENJAMIN NG
G.R. No.176897 | December 11, 2013
• Petitioner Advance Paper is a domestic corporation engaged in the business of producing, printing, manufacturing,
distributing and selling of various paper products. Petitioner George Haw (Haw) is the President while his wife, Connie
Haw, is the General Manager.
• Respondent Arma Traders is also a domestic corporation engaged in the wholesale and distribution of school and office
supplies, and novelty products. Respondent Antonio Tan (Tan) was formerly the President while respondent Uy Seng
Kee Willy (Uy) is the Treasurer of Arma Traders They represented Arma Traders when dealing with its supplier, Advance
Paper, for about 14 years.
• On various dates from September to December 1994, Arma Traders purchased on credit notebooks and other paper
products amounting to ₱7.5 million from Advance Paper.
o Arma Traders also obtained three loans from Advance Paper totaling ₱7.79 million. Because of its good business
relations, Advance Paper extended the loans.
• As payment for the purchases on credit and the loan transactions, Arma Traders issued 82 postdated checks, signed by
Tan and Uy amounting to ₱15.13 million.
o Advance Paper presented the checks to the drawee bank but these were dishonored either for "insufficiency of
funds" or "account closed." Despite repeated demands, however, Arma Traders failed to settle its account with
Advance Paper.
• On December 29, 1994, the petitioners filed a complaint for collection of sum of money.
o To prove the purchases on credit, the petitioners presented the summary of the transactions and their
corresponding sales invoices as their documentary evidence.
o To prove the loan transactions, the petitioners presented the copies of the checks which Advance Paper issued
in favor of Arma Traders.
• In response, respondents argued that the purchases on credit were spurious, simulated and fraudulent since there was no
delivery of the ₱7,000,000.00 worth of notebooks and other paper products.
o During the trial, Ng testified that Arma Traders did not purchase notebooks and other paper products from
September to December 1994.
o As to the loan transactions, the respondents countered that these were the personal obligations of Tan and Uy to
Advance Paper.
o The respondents also claimed that the loan transactions were ultra vires because the board of directors of Arma
Traders did not issue a board resolution authorizing Tan and Uy to obtain the loans from Advance Paper.
o Further, respondents accused Tan and Uy for conspiring with the petitioners to defraud Arma Traders through
the rediscounting of postdated checks.
o The respondents alleged that Tan and Uy would issue Arma Traders’ postdated checks to the petitioners in
exchange for cash, discounted by as much as 7% to 10% depending on how long were the terms of repayment.
• Uy filed his Answer wherein he admitted that Arma Traders has been transacting business with Advance Paper.
o He claimed that he and Tan had been authorized to issue checks in behalf of Arma Traders to pay its obligations.
o Furthermore, he admitted that Arma Traders’ checks were issued to pay its contractual obligations.
o However, according to him, Arma Traders’ checks were funded out of ₱20,000,000.00 worth of collectibles
coming from the provinces, which did not materialize.
 CORPORATION LAW | 2

• RTC: The purchases on credit and loans were sufficiently proven by the petitioners, since respondents failed to present
credible evidence to prove that the sale invoices were forged or fictitious, and that the loan transactions were personal
obligations of Tan and Uy.
• CA: The petitioners failed to prove by preponderance of evidence the existence of the purchases on credit and loans.
o Arma Traders was not liable for the loan in the absence of a board resolution authorizing Tan and Uy to obtain
the loan from Advance Paper. The authority to sign the checks is different from the required authority to contract
a loan.
o Several inconsistencies in the petitioner’s evidence, such as:
▪ "Exhibit E-26," a postdated check payable to Top Line, Advance Paper’s sister company;
▪ "Sale Invoice No. 8946," to prove the existence of the purchases on credit, whose photocopy did not
reflect the amount stated in the duplicate copy, and;
▪ The SEC report of Advance Paper for the year ended 1994 reflected its account receivables amounting
to ₱219,705.19 only.
ISSUE: Whether Arma Traders is liable to pay the loans applying the doctrine of apparent authority. YES.
• The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s authority if it
knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, and it holds him
out to the public as possessing the power to do those acts.
o The doctrine of apparent authority does not apply if the principal did not commit any acts or conduct which a
third party knew and relied upon in good faith as a result of the exercise of reasonable prudence.
o Moreover, the agent’s acts or conduct must have produced a change of position to the third party’s detriment.
o Under Sec. 23 of the Corporation Code, the power and responsibility to decide whether the corporation should
enter into a contract that will bind the corporation is lodged in the board, subject to the articles of incorporation,
bylaws, or relevant provisions of law.
o A corporate officer or agent may represent and bind the corporation in transactions with third persons to the
extent that [the] authority to do so has been conferred upon him…
o [A]pparent authority is derived not merely from practice. Its existence may be ascertained through (1) the general
manner in which the corporation holds out an officer or agent as having the power to act or, in other words the
apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers.
• “The strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization
that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation.”
• The SC ruled that Arma Traders is liable to pay the loans despite the lack of board resolution authorizing Tan and Uy to
obtain the loans.
o To begin with, Arma Traders’ Articles of Incorporation provides that the corporation may borrow or raise money
to meet the financial requirements of its business.
o Likewise, it states that Tan and Uy are not just ordinary corporate officers and authorized bank signatories
because they are also Arma Traders’ incorporators.
o The respondents, through Ng who is Arma Traders’ corporate secretary, testified that the sole management of
Arma Traders was left to Tan and Uy and that he and the other officers never dealt with the business and
management of Arma Traders for 14 years.
 CORPORATION LAW | 3

o Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact with third persons
without the necessary written authority from its non-performing board of directors.
ISSUE: Whether the petitioners proved Arma Traders’ liability on the purchases on credit by preponderance of evidence.
• The SC rejected the claim that the credit purchases were spurious, because Uy himself admitted that all the checks issued
were in payments of the contractual obligations of the Arma Traders with Advance Paper. Moreover, there are other
pieces of evidence to prove the existence of the purchases other than the sales invoices themselves.
o Arma Traders’ postdated checks evince the existence of the purchases on credit.
o Haw testified that within one or two weeks, Arma Traders paid the purchases in the form of postdated checks.
• The SC was not persuaded that these inconsistencies are sufficiently pervasive to affect the totality of evidence showing
the general relationship between Advance Paper and Arma Traders.
o Rather, it held that the discrepancies in the photocopy of the sales invoices and its duplicate copy have been
sufficiently explained. Besides, this is already a non-issue since the duplicate copies were surrendered in the
RTC.
o Furthermore, the fact that the value of Arma Traders' checks does not tally with the total amount of their
obligation with Advance Paper is not inconsistent with the existence of the purchases and loan transactions.
WHEREFORE, premises considered, we GRANT the petition. The decision dated March 31, 2006 and the resolution dated March
7, 2007 of the Court of Appeals in CA-G.R. CV No. 71499 are REVERSED and SET ASIDE. The Regional Trial Court decision
in Civil Case No. 94-72526 dated June 18, 2001 is REINSTATED. No costs.
 CORPORATION LAW | 4

SAN JUAN STRUCTURAL & STEEL FABRICATORS, INC. V. CA, MOTORICH SALES CORP., ET AL.
G.R. No. 129459 | September 29, 1998
• San Juan filed a complaint alleging that, in February 1989, it entered into an agreement1 with Motorich for the transfer
of a 414 sqm. parcel of land in the Acropolis Greens Subdivision in Quezon City.
o As stipulated in the Agreement San Juan paid a down payment of P100,000.00, the balance to be paid on or
before March 2, 1989
o On March 1, 1989, Mr. Andres T. Co, president of San Juan, wrote a letter to Motorich requesting for a
computation of the balance to be paid
▪ This letter was coursed through Motorich’s broker, Linda Aduca, who wrote the computation.
• On March 2, 1989, San Juan was ready with the amount corresponding to the balance, covered by Metrobank Cashiers
Check No. 004223, payable to Motorich.
o San Juan and Motorich were supposed to meet in the office of San Juan but Motorich’s treasurer, Nenita Lee
Gruenberg, did not appear.
o Motorich, despite repeated demands, refused to execute the Transfer of Rights/Deed of Assignment which is
necessary to transfer the certificate of title
o Defendant ACL Development Corp. is impleaded since the TCT is still in its name; JNM Realty & Development
Corp. is impleaded because it is the transferor of right in favor of Motorich.
• In April 6, 1989, defendant ACL Development Corporation and Motorich entered into a Deed of Absolute whereby ACL
transferred to Motorich the same property, causing the issuance of a new TCT in Motorich’s name.

1 AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH, a corporation duly organized and existing under and by virtue of Philippine Laws, with principal office address at 5510 South
Super Hi-way cor. Balderama St., Pio del Pilar, Makati, Metro Manila, represented herein by its Treasurer, NENITA LEE GRUENBERG,
hereinafter referred to as the TRANSFEROR;
- and --
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing under and by virtue of the laws of the
Philippines, with principal office address at Sumulong Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by its President,
ANDRES T. CO, hereinafter referred to as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the ACROPOLIS GREENS SUBDIVISION located
at the District of Murphy, Quezon City, Metro Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered by
a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00) per square meter; subject to the following
terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be paid upon the execution of this
agreement and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the account of the Transferor; and that the monthly amortization
starting March 21, 1989 shall be for the account of the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and that there [are] no existing liens and/or
encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1. (b), the earnest money shall be forfeited in favor of the
Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in
favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February, 1989 at Greenhills, San Juan, Metro Manila, Philippines.
 CORPORATION LAW | 5

o As a result of Motorich’s refusal to execute a formal Transfer of Rights/Deed of Assignment, San Juan suffered
moral and nominal damages, exemplary damages, and costs of suit totaling ₱ 800,000.00.
• In response, Motorich and Nenita Lee Gruenberg interposed as affirmative defense that the President and Chairman of
Motorich did not sign the agreement adverted to.
o Respondents alleged that Mrs. Gruenberg’s signature on the agreement is inadequate to bind Motorich. The other
signature, that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required
o Motorich alleges that San Juan knew this from the beginning and nevertheless insisted that Mrs. Gruenberg
accept the P100,000.00 as earnest money.
o Even assuming the validity of this agreement, San Juan failed to pay within the stipulated; San Juan & Mrs.
Gruenberg had agreed that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash
payment.
• The CA dismissed San Juan’s complaint, ruling that there is no evidence to show that Nenita Lee Gruenberg was indeed
authorized by Motorich to dispose of the property. Since the property is clearly owned by Motorich, its disposition should
be governed by Sec. 40 of the Corporation Code2 of the Philippines.
o No majority vote was obtained by Nenita Lee Gruenberg for that proposed sale, and there was no evidence of
subsequent ratification.
o Further, the Court found no reason to hold Mrs. Gruenberg liable in light of the fact that she did not misrepresent
herself or her authority to San Juan.
ISSUE: Whether or not there is a valid contract between the petitioner and the respondent corporation. NO.
• Petitioner San Juan insists that when Gruenberg and Co affixed their signatures on the contract they both consented to be
bound by the terms thereof. The SC held that this is incorrect.
o True, Gruenberg and Co signed on February 14, 1989, the Agreement according to which a lot owned by
Motorich was purportedly sold. Such contract, however, cannot bind Motorich, because it never authorized
or ratified such sale.
• A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of
the corporation is not the property of its stockholders and may not be sold without express authorization from the
corporation’s board of directors. Under Section 23 of the Corporation Code of the Philippines,3 a corporation may act
only through its board of directors, or through its officers or agents in the normal course of business.
o The general principles of agency govern the relation between the corporation and its officers or agents, subject
to the articles of incorporation, bylaws, or relevant provisions of law.
o Thus, this Court has held that a corporate officer or agent may represent and bind the corporation in transactions
with third persons to the extent that the authority to do so has been conferred upon him.
o The Court has also recognized that persons dealing with an assumed agent are bound at their peril, if they would
hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority

2 Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal combination and monopolies, a corporation may by a
majority vote of its board of directors xxx sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and
assets, including its goodwill xxx when authorized by the vote of the stockholders representing at least two third (2/3) of the outstanding capital stock
x x x.
3 SEC. 23. The Board of Directors or Trustees. -- Unless otherwise provided in this Code, the corporate powers of all corporations formed under this

Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1)
year and until their successors are elected and qualified.
 CORPORATION LAW | 6

▪ Thus, unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in a
sale of its assets.
• In this case, Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell the subject parcel
of land. Thus, petitioner had the burden of proving that Nenita Gruenberg was in fact authorized to represent and
bind Motorich in the transaction. Petitioner failed to discharge this burden.
o Its offer of evidence before the trial court contained no proof of such authority.
o It has not shown any provision of respondent’s articles of incorporation, bylaws or board resolution to prove that
Nenita Gruenberg possessed such power.
o That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of
ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume that she, by
virtue of her position, was authorized to sell the property of the corporation.
▪ Selling is obviously foreign to a corporate treasurers function, which generally has been described as to
receive and keep the funds of the corporation, and to disburse them in accordance with the authority
given him by the board or the properly authorized officers
▪ Neither was such real estate sale shown to be a normal business activity of Motorich. Unmistakably, its
treasurer is not cloaked with actual or apparent authority to buy or sell real property, an activity which
falls way beyond the scope of her general authority.4
• Petitioner’s claim that Motorich has ratified said contract of sale because of its acceptance of benefits is also untenable.
o As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation.
But when these officers exceed their authority, their actions cannot bind the corporation, unless it has ratified
such acts or is estopped from disclaiming them.20cräläwvirtualibräry
o In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it appear
to any third person that she had the authority, to sell its land or to receive the earnest money. Neither was there
any proof that Motorich ratified, expressly or impliedly, the contract.
o Petitioner rests its argument on the receipt, which, however, does not prove the fact of ratification. The
document is a hand-written one, not a corporate receipt, and it bears only Nenita Gruenberg’s signature.
Certainly, this document alone does not prove that her acts were authorized or ratified by Motorich.
• Article 1318 of the Civil Code lists the requisites of a valid and perfected contract: (1) consent of the contracting parties;
(2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established. As found
by the trial court21 and affirmed by the Court of Appeals,22 there is no evidence that Gruenberg was authorized to enter
into the contract of sale, or that the said contract was ratified by Motorich. This factual finding of the two courts is binding
on this Court.23 As the consent of the seller was not obtained, no contract to bind the obligor was perfected. Therefore,
there can be no valid contract of sale between petitioner and Motorich.
• Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land, we hold
that the February 14, 1989 Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil
Code. Being inexistent and void from the beginning, said contract cannot be ratified.

4ART. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void.

ART. 1878 Special powers of attorney are necessary in the following case:
xxx
(5) To enter any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;
 CORPORATION LAW | 7

• However, Nenita Gruenberg should be ordered to return to petitioner the amount she received as earnest money, as no
one shall enrich himself at the expense of another. Although there was no binding relation between them, petitioner paid
Gruenberg on the mistaken belief that she had the authority to sell the property of Motorich.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.