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J. F. RAMIREZ, plaintiff and appellee, vs.

THE ORIENTALIST upon matter which is put in issue by the pleadings; and
Co., and RAMON J. FERNANDEZ, defendants and appellants. if the proof varies materially from the allegations, the
pleadings may, upon the application of the party
1. 1. PLEADING; DUE EXECUTION OF CONTRACT; interested, be amended in order to bring them into
AUTHORITY OF OFFICER TO BIND conformity with the facts proved.
CORPORATION.—Where the name of a corporation is
signed to the document which is the basis of an action, 1. 4. ID.; ID.; SPECIAL DEFENSE.—The rule above
the failure stated applies equally to a special defense stated in the
answer as to the plaintiff's cause of action.
635
1. 5. CORPORATIONS; CONTRACTS; POWER OF
VOL. 38, SEPTEMBER 24, 1918. 635 BOARD; RATIFICATION.—The power to make
Ramirez vs. Orientalist Co. and Fernandez. corporate contracts resides primarily in the company's
board of directors; but the board may ratify an
1. of the defendant corporation to put in issue, by denial unauthorized contract made by an officer of the
under oath the due execution of the instrument, as corporation. Ratification in this case is held to have
required in section 103 of the Code of Civil Procedure, occurred when the board, with knowledge that the
operates as an admission of the authority of the officer contract had been made, adopted a resolution
to execute the contract, since the authority of the officer recognizing the existence of the contract and directing
to bind the company is essential to the due execution of that steps be taken to enable the corporation to utilize
its contract. its benefits.

1. 2. ID.; CORPORATIONS; WANT OF AUTHORITY 1. 6. ID.; ID.; ACTION OF STOCKHOLDERS.—Where


IN AGENT AS SPECIAL DEFENSE.—Where a a corporate contract has been effected with the approval
corporation seeks to evade liability on a contract on the of the board of directors, a resolution adopted at a
ground of lack of authority on the part of the person meeting of stockholders refusing to recognize the
who assumed to act for it, such defense should be contract or repudiating it is without effect.
specially pleaded.
1. 7. CONTRACTS; SURETY; PAROL EVIDENCE TO
1. 3. ID.; AMENDMENTS.—While immaterial variances SHOW CHARACTER IN WHIGH PARTY IS
between allegations in the pleadings and the proof BOUND.—The written contract which was the subject
adduced at the hearing may be disregarded, it is, of this action contained the corporate name signed at
nevertheless, still true that relief can be granted only the lower right-hand corner of the contract, in the
manner usual with a party signing in the character of engaged in the "business of maintaining and conducting a
principal obligor. The name of another individual was theater in the city of Manila for the exhibition of
signed somewhat below and to the left of the corporate cinematographic films. Under the articles of incorporation the
signature, after the customary manner of those who sign company is authorized to manufacture, buy, or otherwise
in a subsidiary capacity; but no words were written to obtain all accessories necessary for conducting such a business.
indicate clearly whether this individual signed as a The plaintiff J. F. Ramirez was, at the same time, a resident of
principal obligor or as surety. Held: That parol evidence the city of Paris, France, and was engaged in the business of
marketing films for a manufacturer or manufacturers, there
636 engaged in the production or distribution of cinematographic
material. In this enterprise the plaintiff was represented in the
636 PHILIPPINE REPORTS ANNOTATED city of Manila by his son, Jose Ramirez.
Ramirez vs. Orientalist Co. and Fernandez.,
In the month of July, 1913, certain of the directors of the
Orientalist Company, in Manila, became apprised of the fact
1. was admissible to show that the intention was that he that the plaintiff in Paris had control of the agencies for two
should be bound as surety and not jointly with the other different marks of films, namely, the "Eclair Films" and the
party.
"Milano Films;" and negotiations were begun with said
officials of the Orientalist Company by Jose Ramirez, as agent
APPEAL from a judgment of the Court of First Instance of of the plaintiff, for the purpose of placing the exclusive agency
Manila. Harvey, J. of these films- in the hands of the Orientalist Company. The
defendant Ramon J. Fernandez, one of the directors of the
The facts are stated in the opinion of the court. Orientalist Company and also its .treasurer, was chiefly active
in this matter, being moved
Jose Moreno Lacalle for appellant Fernandez.
637
Sanz, Opisso & Luzuriaga for appellant "The Orientalist Co."
VOL. 38, SEPTEMBER 24, 1918. 637
No appearance for appellee.
Ramirez vs. Orientalist Co. and Fernandez.
STREET, J.:
by the suggestions and representations of Vicente Ocampo,
The Orientalist Company is a corporation, duly organized manager of the Oriental Theater, to the effect that the securing
under the laws of the Philippine Islands, and in 1913 and 1914, of the exclusive agency of said films was necessary to the
the time of the occurrences which gave rise to this lawsuit, was success of the corporation,
Near the end of July of the year aforesaid, Jose Ramirez, as 638
representative of his f ather, placed in the hands of Ramon J.
Femandez an offer, dated July 4, 1913, stating in detail the 638 PHILIPPINE REPORTS ANNOTATED
terms upon which the plaintiff would undertake to supply from Ramirez vs. Orientalist Co. and Fernandez.
Paris the aforesaid films. This offer was declared to be good
until the end of July; and as only about two days of this period
remained, it appeared important for the Orientalist Company to "We willingly accepted the offer under the terms
act upon the matter speedily, if it desired to take advantage of communicated by your father in his letter dated at Paris on July
said offer. Accordingly, Ramon J. Fernandez, on July 30, had 4th of the present year."
an informal conference with all the members of the company's
board of directors except one, and with the approval of those These communications were signed in the following form, in
with whom he had communicated, addressed a letter to Jose which it will be noted the separate signature of R. J. Fernandez,
Ramirez, in Manila, accepting the offer contained in the as an individual, is placed somewhat below and to the left of
memorandum of July 4th for the exclusive agency of the Eclair the signature of the Orientalist Company as signed by R. J.
films. A few days later, on August 5, he addressed another Fernandez, in the capacity of treasurer:
letter couched in the same terms, likewise accepting the offer
of the exclusive agency for the Milano.films, "THE ORIENTALIST COMPANY,
"By R. J. FERNANDEZ,
The memorandum offer contained a statement of the price at Treasurer.
which the films would be sold, the quantity which the
representative of each was required to take, and information "R. J. FERNANDEZ."
concerning the manner and intervals of time for the respective
shipments. The expenses of packing, transportation and other Both of these letters also contained a request that Jose Ramirez
incidentals were to be at the cost of the purchaser. There was should at once telegraph to his father in Paris that his offer had
added a clause in which J. F. Ramirez described his function in been accepted by the Orientalist Company and instruct him to
such transactions as that of a commission agent and stated that make a contract with the film companies, according to the tenor
he would see to the prompt shipment of the films, would pay of the offer, and in the capacity of attorney-in-fact for the
the manufacturer, and take care that the films were insured— Orientalist Company. The idea behind the latter suggestion
his commission for such services being fixed at 5 per cent. apparently was that the contract for the films would have to be
made directly between the film-producing companies and the
What we consider to be the most material portion of the two Orientalist Company; and it seemed convenient, in order to
letters of acceptance written by R. J. Fernandez to Jose save time, that the Orientalist Company should clothe J. F.
Rarnirez is in the following terms: Ramirez with full authority as its attorney-in-fact. This idea
was never given effect; and so far as the record shows, J. F.
Ramirez himself procured the films upon his own occasion for the present action. All of the drafts accompanying
responsibility, as he indicated in the offer of July 4 that he these films were drawn, as on former occasions, upon the
would do, with the result that the only contracting parties in Orientalist Company; and all were accepted in the name of the
this case are J. F. Ramirez, of the one part, and the Orientalist Orientalist Company by its president, B. Hernandez, except the
Company, with Ramon J. Fernandez, of the other. last, which was accepted. by B. Hernandez individually. None
of the drafts thus accepted were taken up by the drawee or by
ln due time the films began to arrive in Manila, a draft for the B. Hernandez when they fell due; and it was finally necessary
cost and expenses incident to each shipment being attached to for the plaintiff himself to take them up as dishonored by
the proper bill of lading. It appears that the Orientalist nonpayment.
Company was without funds to meet these obligations and the
first few drafts were dealt with in the following manner: The Thereupon this action was instituted by the plaintiff on May 19,
drafts, upon presentment 1914, against the Orientalist Company, and Ramon J.
Fernandez. As the films which accompanied the dishonored
639 drafts were liable to deteriorate, the court, upon application of
the plaintiff, and apparently without opposition on the part of
VOL. 38, SEPTEMBER 24,1918. 639 the defendants, appointed a receiver who took charge of the
Ramirez vs. Orientalist Co. and Fernandez. films and sold them. The amount realized from this sale was
applied to the satisfaction of the plaintiff's claim and was
accordingly delivered to him in part payment thereof. At trial
through the bank, were accepted in the name of the Orientalist judgment was given for the balance due to the plaintiff,
Company by its president B. Hernandez, and were taken up by namely, P6,018.93, with interest from May 19r 1914, the date
the latter with his own funds. As the drafts had thus been paid of the institution of the action. In the judgment of the trial court
by B. Hernandez, the films which had been procured by the the Orienta-
payment of said drafts were treated by him as his own property;
and they in fact never came into the actual possession of the 640
Orientalist Company as owner at all, though it is true
Hernandez rented the films to the Orientalist Company and
they were exhibited by it in the Oriental Theater under an 640 PHILIPPINE REPORTS ANNOTATED
arrangement which was made between him and the theater's Ramirez vs. Orientalist Co. and Fernandez.
manager.
list Company was declared to be a principal debtor and Ramon
During the period, between February 27, 1914, and April 30, J. Fernandez was declared to be liable subsidiarily, as
1914, there arrived in the city of Manila several remittances of guarantor. From this judgment both of the parties defendant
films from Paris, and it is these shipments which have given appealed.
In this Court neither of the parties appellant make any question contained in the letters of July 30 and August 5, 1913, and,
with respect to the right of the plaintiff to recover from secondly, the question of the liability of Ramon
somebody the amount awarded by the lower court; but each of
the defendants insists the other is liable for the whole. It results 641
that the r&al contention upon this appeal is between the two
defendants. VOL. 38, SEPTEMBER 24, 1918. 641
Ramirez vs. Orientalist Co. and Fernamdez.
It is stated in the brief of the appellant Ramon J. Fernandez,
and the statement is not challenged by the Orientalist
J. Fernandez, based upon his personal signature to the same
Company, that the judgment has already been executed as
documents.
against the company and that the full amount has been made,
so that if this Court should find that the Orientalist Company is
exclusively and primarily liable for the entire indebtedness, the As to the liability of the corporation a preliminary point of
question as to the liability of Ramon J. Fernandez would be importance arises upon the pleadings. The action, as already
academic. But if the latter is liable as principal obligor for the stated, is based upon documents purporting to be signed by the
whole or any part of the debt, it will be necessary to modify the Orientalist Company, and copies of the documents are set out
judgment in order to adjust the rights of the defendants in in the complaint. It was therefore incumbent upon the
accordance with such finding. corporation, if it desired to question the authority of Fernandez
to bind it, to deny the due execution of said contracts under
It will be noted that the action is primarily founded upon the oath, as prescribed in section 103 of the Code of Civil
liability created by the letters dated July 30th and August 5, Procedure. Said section, in the part pertinent to the situation
1913, in connection with the plaintiff's offer of July 4, 1913; now under consideration, reads as follows:
and both of the letters mentioned are copied into the complaint
as the foundation of the action. The action is not based upon "When an action is brought upon a written instrument and the
the dishonored drafts which were accepted by B. Hernandez in complaint contains or has annexed a copy of such instrument,
the name of the Orientalist Company; and although these the genuinenesi3 and due execution of the instrument shall be
drafts, as well as the last draft, which was accepted by B. deemed admitted, unless specifically denied under oath in the
Hernandez individually, have been introduced in evidence, this answer."
was evidently done for the purpose of proving the amount of
damages which the plaintiff was entitled to Eecover. No sworn answer denying the genuineness and due execution
of the contracts in question or questioning the authority of
In the discussion which is to follow we shall consider, first, the Ramon J. Fernandez to bind the Orientalist Company was filed
question of the liability of the corporation upon the contracts in this case; but evidence was admitted without objection from
the plaintiff, tending to show that Ramon J. Fernandez had no
such authority. This evidence consisted of extracts f rom the admission extended not only to the authenticity of the signature
minutes of the proceedings of the company's board of directors of Brown but also to his authority. Said Justice Willard: "The
and also of extracts from the minutes of the proceedings of the failure of the defendant to deny the genuineness and due
company's stockholders, showing that the making of this execution of this guaranty under oath was an admission, not
contract had been under consideration in both bodies and that only of the signature of Brown, but also of his authority to
the authority to make the same had been withheld by the make the contract in behalf of the defendant and, of the power
stockholders. It theref ore becomes necessary f or us to of the defendant to enter into such a contract."
consider whether the admission resulting from the failure of the
defendant company to deny the execution of the contracts The rule thus stated is in entire accord with the doctrine
under oath is binding upon it for all purposes of this lawsuit, or prevailing in the United States, as will be seen by reference to
whether such failure should be considered a mere irregularity the following, among other authorities:
of procedure which was waived when the evidence referred to
was admitted without objection from the plaintiff. The proper The case of Barrett Mining Co. vs. Tappan (2 Colo., 124) was
an action against a corporation upon an appeal bond. The name
642 of the company had been affixed to the obligation by an agent,
and no sufficient affidavit was filed by the corporation
642 PHILIPPINE REPORTS ANNOTATED questioning its signature or the authority of the agent to bind
Ramirez vs. Orientalist Co. and Fernandez. the company. It was held that the plaintiff did not have to prove
the due execution of the bond and that the corporation was to
be taken as admitting the authority of the agent to make the
solution of this problem makes it necessary to consider
signature. Among other things the court said: "But it is said that
carefully the principle underlying the provision above quoted.
the authority of Barrett to execute the bond is distinguishable
from the signing and, although the signature must be denied
That the situation was one in which an answer under oath under oath,
denying the authority of the agent should have been interposed,
supposing that the company desired to contest this point, is not
643
open to question. ln the case of Merchant vs. International
Banking' Corporation (6 Phil. Rep., 314), it appeared that one
Brown had signed the name of the defendant bank as guarantor VOL. 38, SEPTEMBER 24, 1918. 643
of a promissory note. The bank was sued upon this guaranty Ramirez vs. Orientalist Co. and Fernandez.
and at the hearing attempted to prove that Brown had no
authority to bind the bank by such contract. It was held that, by the authority of the agent need not be. Upon this we observe
failing to deny the contract under oath, the bank had admitted that the statute manifestly refers to the legal effect of the
the genuineness and due execution thereof, and that this signature, rather than the manual act of signing. If the name of
the obligor, in a bond, is subscribed by one in his presence, and with an affidavit. This question arises from the circumstance
by his direction, the effect is the same as if his name should be that the answer of the corporation does not
signed with his own hand, and under such circumstances we do
not doubt that the obligor must deny his signature under oath, 644
in order to put the obligee to proof of the fact. Quit facit per
aliam facit per se, and when the name is signed by one 644 PHILIPPINE REPORTS ANNOTATED
thereunto authorized, it is as much the signature of the principal Ramirez vs. Orientalist Co. and Fernandez.
as if written with his own hand. Therefore, if the principal
would deny the authority of the agent, as the validity of the
signature is thereby directly attacked, the denial must be under in any way challenge the authority of Ramon J. Fernandez to
oath." bind it by the contracts in question and does not set forth, as a
special defense, any such lack of authority in him. Upon well
established principles of pleading lack of authority in an officer
In Union Dry Company vs. Reid (26 Ga., 107), an action was
of a corporation to bind it by a contract executed by him in its
brought upon a promissory note purporting to have been given
name is a defense which should be specially pleaded—and this
by one A. B., as the treasurer of the defendant company. Said
quite apart from the requirement, contained in section 103, that
the court: "Under the Judiciary Act of 1799, requiring the
the answer setting up such defense should be verified. by oath.
defendant to deny on oath an instrument of writing, upon which
But it should not here escape observation that section 103 also
he is sued, the plea in this case should have been verified.
requires—in conf ormity with the general principle above
stated—that the denial contemplated in that section shall be
If the person who signed this note for the company, and upon
specific. An attack on the instrument in general terms is
which they are sued, was not authorized to make it, let them
insufficient, even though the answer is under oath. (Songco vs.
say so upon oath, and the onus is then on the plaintiff to
Sellner, 37 Phil. Rep., 254.)
overcome the plea."
In the first edition of a well-known treatise on the law of
It should be noted that the provision contained in section 103 of
corporations we find the following proposition:
our Code of Civil Procedure is embodied in some form or other
in the statutes of probably all of the American States, and it is
not by any means peculiar to the laws of California, though it "If an action is brought against a corporation upon a contract
appears to have been taken immediately from the statutes of alleged to be its contract, if it desires to set up the defense that
that State. (Secs. 447 448, California Code of Civil Procedure.) the contract was executed by one not authorized as its agent, it
must plead non est factum." (Thompson on Corporations, 1st
ed., vol. 6, sec. 7631.)
There is really a broader question here involved than that
which relates merely to the formality of verifying the answer
Again, says the same author:
"A corporation can not avail itself of the defense that it had no The reason for the rule enunciated in the foregoing authorities
power to enter into the obligation to enforce which the suit is will, we think, be readily appreciated. In dealing with
brought, unless it pleads that defense. This principle applies corporations the public at large is bound to rely to a large
equally where the defendant intends to challenge the power of extent upon outward appearances. If a man is found acting for a
its officer or agent to execute in its behalf the contract upon corporation with the external indicia of authority, any person,
which the action is brought and where it intends to defend on not having notice of want of authority, may usually rely upon
the ground of a total want of power in the corporation to make those appearances; and if it be found that the directors had
such a contract." (Opus citat. sec. 7619.) permitted the agent to exercise that authority and thereby held
him out as a person competent to bind the corporation, or had
In Simon vs. Calfee (80 Ark., 65), it was said: acquiesced in a contract and retained the benefit supposed to
have been conferred by it, the corporation will be bound,
"Though the power of the officers of a business corporation to notwithstanding the actual authority may never have been
issue negotiable paper in its name is not presumed, such granted. The public is not supposed nor required to know the
corporation can not avail itself of a want of power transactions which happen around the table where the corporate
board of directors or the stockholders are from time to time
645 convoked. Whether a particular officer actually possesses the
authority which he assumes to exercise is frequently known to
VOL. 38, SEPTEMBER 24,1918. 645 very few, and the proof of it usually is not readily accessible to
the stranger who deals with the 'corporation on the faith of the
Ramirez vs. Orientalist Co. and Fernandez.
ostensible authority exercised by some of the corporate
officers. It is therefore reasonable, in a case where an officer of
in its officers to bind it unless the defense was made on such a corporation has made a contract in its name, that the
ground."
646
The rule has been applied where the question was whether a
corporate officer, having admitted power to make a contract,
646 PHILIPPINE REPORTS ANNOTATED
had in the particular instance exceeded that authority, (Merrill
vs. Consumers' Coal Co., 114 N. Y., 216); and it has been held Ramirez vs. Orientalist Co. and Fernandez.
that where the answer in a suit against a corporation on its note
relies simply on the want of power of the corporation to issue corporation should be required, if it denies his authority, to
notes, the defendant can not afterwards object that the plaintiff state such defense in its answer. By this means the plaintiff is
has not shown that the officers executing the note were apprised of the fact that the agent's authority is contested; and
empowered to do so. (Smith vs. Eureka Flour Mills Co., 6 Cal., he is given. an opportunity to adduce evidence showing either
1.)
that the authority existed or that the contract was ratified and 647
approved.
VOL. 38, SEPTEMBER 24,1918. 647
We are of the opinion that the failure of the defendant Ramirez vs. Orientalist Co. and Fernandez.
corporation to make any issue in its answer with regard to the
authority of Ramon J. Fernandez to bind it, and particularly its
allegations of a pleading and the proof shall be distregarded
failure to deny specifically under oath the genuineness and due
and the facts shall be found according to the evidence. The
execution of the contracts sued upon, have the effect of
same section, however, recognizes the necessity for an
eliminating the question of his authority from the case,
amendment of the pleadings, in all cases where the variance is
considered as a matter of mere pleading. The statute (sec. 103)
substantial, to bring them into conformity with the facts
plainly says that if a written instrument, the foundation of the
proved. That section has, in our opinion, by no means
suit, is not denied upon oath, it shall be deemed to be admitted.
abrogated the general and fundamental principle that relief can
It is familiar doctrine that an admission made in a pleading can
only be granted upon matters which are put in issue by the
not be controverted by the party making such admission; and
pleadings. A judgment must be in conformity with the case
all proof submitted by him contrary thereto or inconsistent
made in the pleadings and established by the proof, and relief
therewith should simply be ignored by the court, whether
can not be granted that is substantially inconsistent with either.
objection is interposed by the opposite party or not. We can see
A party can no more succeed upon a case proved but not
no reason why a constructive admission, created by the express
alleged than upon a case alleged but not proved. This rule, of
-words of the statute, should be considered to have less effect
course, operates with like effect upon both parties, and applies
than any other admission.
equally to the defendant's special defense as to the plaintiff's
cause of action.
The parties to an action are required to submit their respective
contentions to the court in their complaint and answer. These
Of course this Court, under section 109 of the Code of Civil
documents supply the materials which the court must use in
Procedure, has authority even now to permit the answer of the
order to discover the points of contention between the parties;
defendant to be amended; and if we believed that the interests
and where the statute says that the due execution of a document
of justice so required, we would either exercise that authority
which supplies the foundation of an action is to be taken as
or remand the cause for a new trial in the court below. As will
admitted unless denied under oath, the failure of the defendant
appear further on in this opinion, however, we think that the
to make such denial must be taken to operate as a conclusive
interests of justice will best be promoted by deciding the case,
admission, so long as the pleadings remain in that form.
without more ado, upon the issues presented in the record as it
now stands.
It is true that it is declared in section 109 of the Code of Civil
Profcedure that immaterial variances between the
That we may not appear to have overlooked the matter, we will and did not have to be set up in a sworn reply. (Cf. Moore vs.
observe that two cases are cited from California in which the Copp, 119 Cal., 429, 432, 433.) A somewhat similar
Supreme Court of the State has held that where a release is explanation can, we think, be given of the case of Clark vs.
pleaded by way of defense and evidence tending to destroy its Child (66 Cal., 87), in which the rule declared in the earlier
effect is introduced without objection, the circumstance that it case was followed. With respect to both decisions we merely
was not denied under oath is immaterial. In the earlier of these observe that upon the point of procedure which they are
cases, Crowley vs. Railroad. Co. (60 Cal., 628), an action was supposed to maintain, the reasoning of the court is in our
brought against a railroad company to recover damages for the opinion unconvincing.
death of
We shall now consider the liability of the defendant company
648 on the merits just as if that liability had been properly put in
issue by a specific answer under oath denying the authority of
648 PHILIPPINE REPORTS ANNOTATED Fernandez to bind it. Upon this question it must at the outset be
Ramirez vs. Orientalist Co. and Fernandez. premised that Ramon J. Fernandez, as treasurer, had no
independent authority to bind the company by signing its name
to the letters in question. It is declared in section 28 of the
the plaintiff's minor son, alleged to have been killed by the
Corporation Law that cor-
negligence of the defendant. The defendant company pleaded
by way of defense a release purporting to be signed by the
649
plaintiff, and in its answer inserted a copy of the release. The
execution of the release was not denied under oath; but at the
trial evidence was submitted on behalf of the plaintiff tending VOL. 38, SEPTEMBER 24, 1918. 649
to show that at the time he signed the release, he was Ramirez vs. Orientalist Co. and Fernandez.
incompetent by reason of drunkenness to bind himself thereby.
It was held that inasmuch as this evidence had been submitted porate powers shall be exercised, and all corporate business
by the plaintiff without objection, it was proper for the court to conducted. by the board of directors; and this principle is
consider it. We do not question the propriety of that decision, recognized in the by-laws of the corporation in question which
especially as the issue had been passed upon by a jury; but we contain a provision declaring that the power to make contracts
believe that the decision would have been more soundly shall be vested in the board of directors, It is true that it is also
planted if it had been said that the incapacity of the plaintiff, declared in the same by-laws that the president shall have the
due to his drunken condition, was a matter which did not power, and it shall be his duty, to sign contracts; but this has
involve either the genuineness or due execution of the release. reference rather to the formality of reducing to proper form the
Like the defenses of fraud, coercion, imbecility, and mistake, it contracts which are authorized by the board and is not intended
was a matter which could be proved under the general issue
to confer an independent power to make contracts binding on pany or its directors have sanctioned. It may be established
the corporation. sometimes without reference to official record of the
proceedings of the board, by proof of the usage which the
The fact that the power to make corporate contracts is thus company had permitted to grow up in the business, and of the
vested in the board of directors does not signify that a formal acquiescenee of the board charged with the duty of supervising
vote of the board must always be taken before contractual and controlling the company's business."
liability can be fixed upon a corporation; for the board, can
create liability, like an individual, by other means than by a It appears in evidence, in the case now before us, that on July
formal expression of its will. In this connection the case of 30, the date upon which the letter accepting the offer of the
Robert Gair Co. vs. Columbia Rice Packing Co. (124 La., 194) Bclair films was dispatched, the board of directors of the
is instructive. It there appeared that the secretary of the Orientalist Company convened in special session in the office
defendant corporation had signed an obligation on its behalf of Ramon J. Fernandez at the request of the latter. There were
binding it as guarantor of the perf ormance of an important present the four members, including the president, who had
contract upon which the name of another corporation appeared already signified their consent to the making of the contracts.
as principal. The defendant company set up by way of defense At this meeting, as appears from the minutes, Fernandez
that its secretary had no authority to bind it by such an informed the board of the offer which had been received from
engagement. The court found that the guaranty was given with the plaintiff with reference to the importation of films. The
the knowledge and consent of the president and directors, and minutes add that the terms of this offer' were approved; but at
that this consent was given with as much observance of the suggestion of Fernandez it was decided to call a special
formality as was customary in the transaction of the business of meeting of the stockholders to consider the matter, and
the company. It was held that, so far as the authority of the definitive action was postponed.
secretary was concerned, the contract was binding. In
discussing this point, the court quoted with approval the f The stockholders meeting was convoked upon September 18,
ollowing language from one of its prior decisions: 1913, upon which occasion Fernandez informed those present
of the offer in question and of the terms upon which the films
"The authority of the subordinate agent, of a corporation often could be procured. He estimated that ±he company would have
depends upon the course of dealings which the com- to make an outlay of about P5,500 per month, if the offer f or
the two films should be accepted by it.
650
The following extracts from the minutes of this meeting are
650 PHILIPPINE REPORTS ANNOTATED here pertinent:
Ramirez vs. Orientalist Co. and Fernandez.
"Mr. Fernandez informed the stockholders that, in view of the the corporation is lacking available funds for the purpose, and
urgency of the matter and for the purpose of avoiding that other also because there are 88 shares of stock remaining still
importers should get ahead of the corporation in this regard, he unsold."
and Messrs. B. Hernandez, Leon Monroy, and Dr. Papa met for
the purpose of considering the acceptance of the offer together In view of this statement, the stockholders adopted a resolution
with the responsibilities attached thereto, made to the to the effect that the agencies of the Eclair and Milano films
corporation by the film manufacturers should be accepted, if the corporation could obtain the money
with which to meet the expenditure involved, and to this end
651 appointed a committee to apply to the bank for a credit. The
evidence shows that an attempt was made, on behalf of the
VOL. 38, SEPTEMBER 24, 1918. 651 corporation, to obtain a credit of P10,000 from the Bank of the
Ramirez vs. Orientalist Co. and Fernandez. Philippine Islands for the purpose indicated, but that the bank
declined to grant this credit. Thereafter another special meeting
of the shareholders of the defendant corporation was called at
of Eclair and Milano of Paris and Italy respectively, inasmuch which the failure of their committee to obtain a credit from the
as the first shipment of films was then expected to arrive. bank was made known. A resolution was thereupon passed to
the effect that the company should pay to Hernandez,
"At the same time he informed the said stockholders that he
had already made arrangements with respect to renting said 652
films after they have been once exhibited in the Cine Oriental,
and that the corporation could, very well meet the expenditure
involved and net a certain profit, but that, if we could enter into 652 PHILIPPINE REPORTS ANNOTATED
a contract with about nine cinematographs, big gains would be Ramirez vs. Orientalist Co. and Fernandez.
obtained through such a step."
Fernandez, Monroy, and Papa an amount equal to 10 per cent
The possibility that the corporation might not see fit to of their outlay in importing the films, said payment to be made
authorize the contract, or might for lack of funds be unable to in shares of the company in accordance with the suggestion
make the necessary outlay, was foreseen; and in such made at the previous meeting. At the time this meeting was
contingency, the stockholders were informed, that the four held three shipment of the films had already been received in
gentlemen above mentioned (Hernandez, Fernandez, Monroy, Manila.
and Papa) "would continue importing said films at their own
account and risk, and shall be entitled only to a compensation We believe it is a fair inference from the recitals of the minutes
of 10 per cent of their outlay in importing the films, said of the stockholder's meeting of September 18, and especially
payment to be made in shares of said corporation, inasmuch as from the first paragraph above quoted, that this body was then
cognizant that the offer had already been accepted in the name the contract was made with their prior approval. As appears
of the Orientalist Company and that the films which were then from the papers in this record, Fernandez was the person to
expected to arrive were being imported by virtue of such whose keeping was confided the printed stationery bearing the
acceptance. Certainly four members of the board of directors official style of the corporation, as well as a rubber stencil with
there present were aware of this fact, as the letters accepting which the name of the corporation could be signed to
the offer had been sent with their knowledge and consent. In documents bearing its name.
view of this circumstance, a certain doubt arises whether the
stockholders meant by their final resolution really to repudiate Ignoring now, for a moment, the transactions of the
the contracts which had been made in the name of the company stockholders, and reverting to the proceedings of the board of
or whether they meant to utilize the financial assistance of the directors of the Orientalist Company; we find that upon
four so-called importers in order that the corporation might get October 27, 1913, after Fernandez had departed from the
the benefit of the contracts for the films, just as it would have Philippine Islands, to be absent for many months, said board
utilized the credit of the bank if such credit had been extended. adopted a resolution conferring the following among other
If such was the intention of the stockholders their action powers on Vicente Ocampo, the manager of the Oriental
amounted to a virtual, though indirect, approval of the theater, namely:
contracts. It is not, however, necessary to found the judgment
on this interpretation of the stockholder's proceedings, 1. "(1) To rent a box for the films in the 'Kneedler
inasmuch as we think, for reasons presently to be stated, that Building.'
the corporation is bound, and we will here assume that in the 2. " (4) T'o be in charge of the films and of the renting of
end the contracts were not approved by the stockholders. the same.
3. " (5) To advertise in the different newspapers that we
It will be observed that Ramon J. Fernandez Was the particular are importing films to be exhibited in the Cine Oriental.
officer and member of the board of directors who was most 4. " (6) Not to deliver any film for rent without first
active in the effort to secure the films for the corporation. The receiving the rental therefor or the guaranty for the
negotiations were conducted by him with the knowledge and payment thereof.
consent of other members of the board; and 5. "(7) To buy a book and cards for indexing the names of
the films.
653 6. " (10) Upon the motion of Mr. Ocampo, it was decided
to give ample powers to the Hon. R. Acufia to enter into
VOL. 38, SEPTEMBER 24, 1918. 653 agreements with cinematograph proprietors in the
Ramirez vs. Orientalist Co. and Fernandez. provinces for the purpose of renting films from us."
It thus appears that the board of directors, before the financial corporation, in such matters, is represented by the former and
inability of the corporation to proceed with the project was not by the latter. (Cook on Corporations, sixth ed., secs. 708,
revealed, had already recognized the contracts as being in 709.) This conclusion is entirely accordant with the provisions
existence and had proceeded to take the steps necessary to of section 28 of our Corporation Law already referred to. It
utilize the films. Particularly suggestive is the direction given results that where a meeting of the stockholders is called f or
at this meeting for the publication of announcements in the the purpose of passing on the propriety of making a corporate
newspapers to the effect that the com- contract, its resolutions are at most advisory and not in any
wise binding on the board.
654
In passing upon the liability of a corporation in cases of this
654 PHILIPPINE REPORTS ANNOTATED kind it is always well to keep in mind the situation as it
Ramirez vs. Orientalist Co. and Fernandez. presents itself to the third party with whom the contract is
made. Naturally he can have little or no information as to what
occurs in corporate meetings; and he must necessarily rely
pany was engaged in importing films. ln the light of all the upon the external manifestations of corporate consent. The
circumstances of the case, we are of the opinion that the integrity of commercial transactions can only be maintained by
contracts in question were thus inferentially approved by the
holding the corporation strictly
company's board of directors and that the company is bound
unless the subsequent failure of the stockholders to approve
655
said contracts had the effect of abrogating the liability thus
created.
VOL. 38, SEPTEMBER 24,1918. 655
Both upon principle and authority it is clear that the action of Ramirez vs. Orientalist Co. and Fernandez.
the stockholders, whatever its character, must be ignored. The
functions of the stockholders of a corporation are, it must be to the liability fixed upon it by its agents in accordance with
remembered, of a limited nature. The_ theory of a corporation law; and we would be sorry to announce a doctrine which
is that the stockholders may have all the profits but shall turn would permit the property of a man in the city of Paris to be
over the complete management of the enterprise to their whisked out of his hands and carried into a remote quarter of
representatives and agents, called directors. Accordingly there the earth without recourse against the corporation whose name
is little for the stockholders to do beyond electing directors, and authority had been used in the manner disclosed in this
making by-laws, and exercising certain other special powers case. As already observed, it.is familiar doctrine that if a
defined by law. In conformity with this idea it is settled that corporation knowingly permits one of its officers, or any other
contracts between a corporation and third persons must be agent, to do acts within the scope of an apparent authority, and
made by the directors and not by the stockholders. The thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in to discover that intention. ln -this connection it is entirely clear,
good f aith dealt with the corporation through such agent, be from the testimony of both Ramirez and Ramon J. Fernandez,
estopped from denying his authority; and where it is said "if the that the responsibility of the latter was intended to be that of a
corporation permits" this means the same as "if the thing is guarantor. There is, to be sure, a certain difference between
permitted by the directing power "of the corporation." these witnesses as to the nature of this guaranty, inasmuch as
Fernandez would have us believe that his name was signed as a
It being determined that the corporation is bound by the guaranty that the contract would be approved by the
contracts in question, it remains to consider the character of the corporation, while Ramirez says that the name was put on the
liability assumed by Ramon J. Fernandez, in affixing his contract for the purpose of guaranteeing, not the approval of
personal signature to said contracts. The question here is the contract, but its performance. We are convinced that the
whether Fernandez is liable jointly with the Orientalist latter was the real intention of the contracting parties.
Company as a principal obligor, or whether his liability is that
of a guarantor merely. We are not unmindful of the force of that rule of law which
declares that oral evidence is inadmissible to vary the effect of
As appears upon the face of the contracts, the signature of a written contract. But it must be remembered that ambiguities
Fernandez, in his individual capacity, is not in line with the with respect to the meaning of the language used by the parties
signature of the Orientalist Company, but is set off to the left of may be explained by parol evidence and we see no reason why
the company's signature and somewhat below. Observation an ambiguity arising, as in this case, from the form in which
teaches that it is customary for persons who sign contracts in the contract was signed may not be explained in the same way.
some capacity other than that of principal obligor to place their It is certainly the duty of a court to seek the means, of giving
signatures to one side; but we hardly think that this effect to the intention of the contracting parties rather than to
circumstance alone would justify a court in holding that seek pretexts for defeating it.
Fernandez here took upon himself the responsibility of a
guarantor rather than that of a principal obligor. We do, If the name of a person not interested in the performance of
however, think that the form in which the contract is signed these contracts had appeared written in the place where the
raises a doubt as to what the real intention was; and we feel name of Ramon J. Fernandez is signed, and the evidence had
justified, in looking to the evidence shown that such name was there written merely to attest the
signature of the corporation, or of Ramon J. Fernandez.as
656 treasurer, no court would have had any hesitation in holding
that no liability had been incurred though words were wanting
656 PHILIPPINE REPORTS ANNOTATED to show how the name was signed.
Ramirez vs. Orientalist Co. and Fernandez.
We are of the opinion that where a name is signed Judgment affirmed.
ambiguously, parol evidence is admissible to show the
character in which the signature was affixed. This conclusion is
perhaps supported by the language of the second paragraph

657

VOL. 38, SEPTEMBER 24,1918. 657


Enage vs. Vda. e Hijos de F. Escano.

of article 1281 of the Civil Code, which declares that if the


words of a contract should appear contrary to the evident
intention of the parties, the intention shall prevail. But the
conclusion reached is, we think, deducible from the general
principle that in case of ambiguity parol evidence is admissible
to show the intention of the contracting parties.

It should be stated in conclusion that as the issues in this case


have been framed, the only question presented to this court is:
To what extent are the signatory parties to the contract liable to
the plaintiff J. F. Ramirez ? No contentious issue is raised
directly between the def endants, the Orientalist Company and
Ramon J. Fernandez; nor does the present action involve any
question as to the undertaking of Fernandez and his three
associates to effect the importation of the films upon their own
account and risk. Whether they may be bound to hold the
company harmless is a matter upon which we express no
opinion.

The judgment appealed from is affirmed, with costs equally


against the two appellants. So ordered.

Torres, Johnson, Malcolm, Avancena, and Fisher, JJ., concur.

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