Ramirez vs. Orientalist - Escra

2/17/2021 PHILIPPINE REPORTS ANNOTATED VOLUME 038
[No. 11897. September 24, 1918.]
J. F. RAMIREZ, plaintiff and appellee, vs. THE

ORIENTALIST Co., and RAMON J. FERNANDEZ,
defendants and appellants.
1. PLEADING; DUE EXECUTION OF CONTRACT;

AUTHORITY OF OFFICER TO BIND CORPORATION.—
Where the name of a corporation is signed to the
document which is the basis of an action, the failure
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VOL. 38, SEPTEMBER 24, 1918. 635
Ramirez vs. Orientalist Co. and Fernandez.
of the defendant corporation to put in issue, by denial

under oath the due execution of the instrument, as
required in section 103 of the Code of Civil Procedure,
operates as an admission of the authority of the officer to
execute the contract, since the authority of the officer to
bind the company is essential to the due execution of its
contract.
2. ID.; CORPORATIONS; WANT OF AUTHORITY IN

AGENT AS SPECIAL DEFENSE.—Where a corporation
seeks to evade liability on a contract on the ground of lack
of authority on the part of the person who assumed to act
for it, such defense should be specially pleaded.
3. ID.; AMENDMENTS.—While immaterial variances

between allegations in the pleadings and the proof
adduced at the hearing may be disregarded, it is,
nevertheless, still true that relief can be granted only
upon matter which is put in issue by the pleadings; and if
the proof varies materially from the allegations, the
pleadings may, upon the application of the party
interested, be amended in order to bring them into
conformity with the facts proved.
www.central.com.ph/sfsreader/session/00000177aff3fa3bd6de3d94003600fb002c009e/t/?o=False 1/22
ID.; ID.; SPECIAL DEFENSE.—The rule above stated

4.
applies equally to a special defense stated in the answer
as to the plaintiff's cause of action.
5. CORPORATIONS; CONTRACTS; POWER OF BOARD;

RATIFICATION.—The power to make corporate contracts
resides primarily in the company's board of directors; but
the board may ratify an unauthorized contract made by an
officer of the corporation. Ratification in this case is held
to have occurred when the board, with knowledge that the
contract had been made, adopted a resolution recognizing
the existence of the contract and directing that steps be
taken to enable the corporation to utilize its benefits.
6. ID.; ID.; ACTION OF STOCKHOLDERS.—Where a

corporate contract has been effected with the approval of
the board of directors, a resolution adopted at a meeting of
stockholders refusing to recognize the contract or
repudiating it is without effect.
7. CONTRACTS; SURETY; PAROL EVIDENCE TO SHOW

CHARACTER IN WHIGH PARTY IS BOUND.—The
written contract which was the subject of this action
contained the corporate name signed at the lower right-
hand corner of the contract, in the manner usual with a
party signing in the character of principal obligor. The
name of another individual was signed somewhat below
and to the left of the corporate signature, after the
customary manner of those who sign in a subsidiary
capacity; but no words were written to indicate clearly
whether this individual signed as a principal obligor or as
surety. Held: That parol evidence
636
636 PHILIPPINE REPORTS ANNOTATED
Ramirez vs. Orientalist Co. and Fernandez.,
was admissible to show that the intention was that he

should be bound as surety and not jointly with the other
party.
APPEAL from a judgment of the Court of First Instance of

Manila. Harvey, J.
The facts are stated in the opinion of the court.
Jose Moreno Lacalle for appellant Fernandez.
Sanz, Opisso & Luzuriaga for appellant "The Orientalist

Co."
No appearance for appellee.
STREET, J.:
The Orientalist Company is a corporation, duly organized

under the laws of the Philippine Islands, and in 1913 and
1914, the time of the occurrences which gave rise to this
lawsuit, was engaged in the "business of maintaining and
conducting a theater in the city of Manila for the exhibition
of cinematographic films. Under the articles of
incorporation the company is authorized to manufacture,
buy, or otherwise obtain all accessories necessary for
conducting such a business. The plaintiff J. F. Ramirez
was, at the same time, a resident of the city of Paris,
France, and was engaged in the business of marketing
films for a manufacturer or manufacturers, there engaged
in the production or distribution of cinematographic
material. In this enterprise the plaintiff was represented in
the city of Manila by his son, Jose Ramirez.
In the month of July, 1913, certain of the directors of the
Orientalist Company, in Manila, became apprised of the
fact that the plaintiff in Paris had control of the agencies
for two different marks of films, namely, the "Eclair Films"
and the "Milano Films;" and negotiations were begun with
said officials of the Orientalist Company by Jose Ramirez,
as agent of the plaintiff, for the purpose of placing the
exclusive agency of these films- in the hands of the
Orientalist Company. The defendant Ramon J. Fernandez,
one of the directors of the Orientalist Company and also its
.treasurer, was chiefly active in this matter, being moved
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VOL. 38, SEPTEMBER 24, 1918. 637

by the suggestions and representations of Vicente Ocampo,

manager of the Oriental Theater, to the effect that the
securing of the exclusive agency of said films was necessary
to the success of the corporation,
Near the end of July of the year aforesaid, Jose Ramirez,
as representative of his f ather, placed in the hands of
Ramon J. Femandez an offer, dated July 4, 1913, stating in
detail the terms upon which the plaintiff would undertake
to supply from 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 act upon the matter speedily, if
it desired to take advantage of said offer. Accordingly,
Ramon J. Fernandez, on July 30, had an informal
conference with all the members of the company's board of
directors except one, and with the approval of those with
whom he had communicated, addressed a letter to Jose
Ramirez, in Manila, accepting the offer contained in the
memorandum of July 4th for the exclusive agency of the
Eclair films. A few days later, on August 5, he addressed
another letter couched in the same terms, likewise
accepting the offer of the exclusive agency for the
Milano.films,
The memorandum offer contained a statement of the
price at which the films would be sold, the quantity which
the representative of each was required to take, and
information concerning the manner and intervals of time
for the respective shipments. The expenses of packing,
transportation and other incidentals were to be at the cost
of the purchaser. There was added a clause in which J. F.
Ramirez described his function in such transactions as that
of a commission agent and stated that he would see to the
prompt shipment of the films, would pay the manufacturer,
and take care that the films were insured—his commission
for such services being fixed at 5 per cent.
What we consider to be the most material portion of the
two letters of acceptance written by R. J. Fernandez to Jose
Rarnirez is in the following terms:
638

"We willingly accepted the offer under the terms communicated

by your father in his letter dated at Paris on July 4th of the
present year."
These communications were signed in the following form, in
which it will be noted the separate signature of R. J. Fernandez,
as an individual, is placed somewhat below and to the left of the
signature of the Orientalist Company as signed by R. J.
Fernandez, in the capacity of treasurer:
"THE ORIENTALIST COMPANY,
"By R. J. FERNANDEZ,
Treasurer.
"R. J. FERNANDEZ."
Both of these letters also contained a request that Jose

Ramirez should at once telegraph to his father in Paris that
his offer had been accepted by the Orientalist Company
and instruct him to make a contract with the film
companies, according to the tenor of the offer, and in the
capacity of attorney-in-fact for the Orientalist Company.
The idea behind the latter suggestion apparently was that
the contract for the films would have to be made directly
between the film-producing companies and the Orientalist
Company; and it seemed convenient, in order to save time,
that the Orientalist Company should clothe J. F. 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
responsibility, as he indicated in the offer of July 4 that he
would do, with the result that the only contracting parties
in this case are J. F. Ramirez, of the one part, and the
Orientalist Company, with Ramon J. Fernandez, of the
other.
ln due time the films began to arrive in Manila, a draft
for the cost and expenses incident to each shipment being
attached to the proper bill of lading. It appears that the
Orientalist Company was without funds to meet these
obligations and the first few drafts were dealt with in the
following manner: The drafts, upon presentment
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VOL. 38, SEPTEMBER 24,1918. 639

through the bank, were accepted in the name of the

Orientalist Company by its president B. Hernandez, and
were taken up by the latter with his own funds. As the
drafts had thus been paid by B. Hernandez, the films which
had been procured by the payment of said drafts were
treated by him as his own property; and they in fact never
came into the actual possession of the 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 arrangement which
was made between him and the theater's manager.
During the period, between February 27, 1914, and
April 30, 1914, there arrived in the city of Manila several
remittances of films from Paris, and it is these shipments
which have given occasion for the present action. All of the
drafts accompanying these films were drawn, as on former
occasions, upon the Orientalist Company; and all were
accepted in the name of the Orientalist Company by its

president, B. Hernandez, except the last, which was
accepted. by B. Hernandez individually. None of the drafts
thus accepted were taken up by the drawee or by B.
Hernandez when they fell due; and it was finally necessary
for the plaintiff himself to take them up as dishonored by
nonpayment.
Thereupon this action was instituted by the plaintiff on
May 19, 1914, against the Orientalist Company, and
Ramon J. Fernandez. As the films which accompanied the
dishonored drafts were liable to deteriorate, the court, upon
application of the plaintiff, and apparently without
opposition on the part of the defendants, appointed a
receiver who took charge of the 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 judgment
was given for the balance due to the plaintiff, namely,
P6,018.93, with interest from May 19r 1914, the date of the
institution of the action. In the judgment of the trial court
the Orienta-
640

list Company was declared to be a principal debtor and

Ramon J. Fernandez was declared to be liable subsidiarily,
as guarantor. From this judgment both of the parties
defendant appealed.
In this Court neither of the parties appellant make any
question with respect to the right of the plaintiff to recover
from somebody the amount awarded by the lower court; but
each of the defendants insists the other is liable for the
whole. It results that the r&al contention upon this appeal
is between the two defendants.
It is stated in the brief of the appellant Ramon J.
Fernandez, and the statement is not challenged by the
Orientalist Company, that the judgment has already been
executed as 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 question as to the liability of
Ramon J. Fernandez would be academic. But if the latter is
liable as principal obligor for the whole or any part of the
debt, it will be necessary to modify the judgment in order to
adjust the rights of the defendants in accordance with such

finding.
It will be noted that the action is primarily founded
upon the liability created by the letters dated July 30th
and August 5, 1913, in connection with the plaintiff's offer
of July 4, 1913; and both of the letters mentioned are
copied into the complaint as the foundation of the action.
The action is not based upon the dishonored drafts which
were accepted by B. Hernandez in the name of the
Orientalist Company; and although these drafts, as well as
the last draft, which was accepted by B. Hernandez
individually, have been introduced in evidence, this was
evidently done for the purpose of proving the amount of
damages which the plaintiff was entitled to Eecover.
In the discussion which is to follow we shall consider,
first, the question of the liability of the corporation upon
the contracts contained in the letters of July 30 and August
5, 1913, and, secondly, the question of the liability of
Ramon
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VOL. 38, SEPTEMBER 24, 1918. 641

Ramirez vs. Orientalist Co. and Fernamdez.
J. Fernandez, based upon his personal signature to the

same documents.
As to the liability of the corporation a preliminary point
of importance arises upon the pleadings. The action, as
already stated, is based upon documents purporting to be
signed by the Orientalist Company, and copies of the
documents are set out in the complaint. It was therefore
incumbent upon the corporation, if it desired to question
the authority of Fernandez to bind it, to deny the due
execution of said contracts under oath, as prescribed in
section 103 of the Code of Civil Procedure. Said section, in
the part pertinent to the situation now under
consideration, reads as follows:
"When an action is brought upon a written instrument and the

complaint contains or has annexed a copy of such instrument, the
genuinenesi3 and due execution of the instrument shall be
deemed admitted, unless specifically denied under oath in the
answer."
No sworn answer denying the genuineness and due

execution of the contracts in question or questioning the
authority of Ramon J. Fernandez to bind the Orientalist
Company was filed 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 minutes of the proceedings
of the company's board of directors and also of extracts
from the minutes of the proceedings of the company's
stockholders, showing that the making of this contract had
been under consideration in both bodies and that the
authority to make the same had been withheld by the
stockholders. It theref ore becomes necessary f or us to
consider whether the admission resulting from the failure
of the defendant company to deny the execution of the
contracts under oath is binding upon it for all purposes of
this lawsuit, or whether such failure should be considered a
mere irregularity of procedure which was waived when the
evidence referred to was admitted without objection from
the plaintiff. The proper
642

solution of this problem makes it necessary to consider

carefully the principle underlying the provision above
quoted.
That the situation was one in which an answer under
oath denying the authority of the agent should have been
interposed, supposing that the company desired to contest
this point, is not 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 of a promissory note. The
bank was sued upon this guaranty and at the hearing
attempted to prove that Brown had no authority to bind
the bank by such contract. It was held that, by failing to
deny the contract under oath, the bank had admitted the
genuineness and due execution thereof, and that this
admission extended not only to the authenticity of the
signature of Brown but also to his authority. Said Justice
Willard: "The failure of the defendant to deny the
genuineness and due execution of this guaranty under oath
was an admission, not only of the signature of Brown, but
also of his authority to make the contract in behalf of the
defendant and, of the power of the defendant to enter into
such a contract."
The rule thus stated is in entire accord with the doctrine
prevailing in the United States, as will be seen by reference
to the following, among other authorities:

The case of Barrett Mining Co. vs. Tappan (2 Colo., 124)
was an action against a corporation upon an appeal bond.
The name of the company had been affixed to the obligation
by an agent, and no sufficient affidavit was filed by the
corporation questioning its signature or the authority of
the agent to bind 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 signature. Among other
things the court said: "But it is said that the authority of
Barrett to execute the bond is distinguishable from the
signing and, although the signature must be denied under
oath,
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VOL. 38, SEPTEMBER 24, 1918. 643

the authority of the agent need not be. Upon this we

observe that the statute manifestly refers to the legal effect
of the 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 by his direction, the effect is the same as
if his name should be signed with his own hand, and under
such circumstances we do not doubt that the obligor must
deny his signature under oath, 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 thereunto authorized, it is
as much the signature of the principal 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 oath."
In Union Dry Company vs. Reid (26 Ga., 107), an action
was brought upon a promissory note purporting to have
been given by one A. B., as the treasurer of the defendant
company. Said the court: "Under the Judiciary Act of 1799,
requiring the defendant to deny on oath an instrument of
writing, upon which he is sued, the plea in this case should
have been verified.
If the person who signed this note for the company, and
upon which they are sued, was not authorized to make it,
let them say so upon oath, and the onus is then on the
plaintiff to overcome the plea."
It should be noted that the provision contained in
section 103 of 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 appears to have been taken
immediately from the statutes of that State. (Secs. 447 448,
California Code of Civil Procedure.)
There is really a broader question here involved than
that which relates merely to the formality of verifying the
answer with an affidavit. This question arises from the
circumstance that the answer of the corporation does not
644

in any way challenge the authority of Ramon J. Fernandez

to 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 of a corporation to bind it by a
contract executed by him in its name is a defense which
should be specially pleaded—and this quite apart from the
requirement, contained in section 103, that the answer
setting up such defense should be verified. by oath. But it
should not here escape observation that section 103 also
requires—in conf ormity with the general principle above
stated—that the denial contemplated in that section shall
be specific. An attack on the instrument in general terms is
insufficient, even though the answer is under oath. (Songco
vs. Sellner, 37 Phil. Rep., 254.)
In the first edition of a well-known treatise on the law of
corporations we find the following proposition:
"If an action is brought against a corporation upon a contract

alleged to be its contract, if it desires to set up the defense that
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.)
Again, says the same author:
"A corporation can not avail itself of the defense that it had no
power to enter into the obligation to enforce which the suit is
brought, unless it pleads that defense. This principle applies
equally where the defendant intends to challenge the power of its
officer or agent to execute in its behalf the contract upon which
the action is brought and where it intends to defend on the ground
of a total want of power in the corporation to make such a
contract." (Opus citat. sec. 7619.)
In Simon vs. Calfee (80 Ark., 65), it was said:
"Though the power of the officers of a business corporation to

issue negotiable paper in its name is not presumed, such
corporation can not avail itself of a want of power
645
VOL. 38, SEPTEMBER 24,1918. 645

in its officers to bind it unless the defense was made on such

ground."
The rule has been applied where the question was whether
a corporate officer, having admitted power to make a
contract, had in the particular instance exceeded that
authority, (Merrill vs. Consumers' Coal Co., 114 N. Y., 216);
and it has been held 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 notes, the defendant
can not afterwards object that the plaintiff has not shown
that the officers executing the note were empowered to do
so. (Smith vs. Eureka Flour Mills Co., 6 Cal., 1.)
The reason for the rule enunciated in the foregoing
authorities will, we think, be readily appreciated. In
dealing with corporations the public at large is bound to
rely to a large extent upon outward appearances. If a man
is found acting for a corporation with the external indicia of
authority, any person, not having notice of want of
authority, may usually rely upon those appearances; and if
it be found that the directors had permitted the agent to
exercise that authority and thereby held him out as a
person competent to bind the corporation, or had
acquiesced in a contract and retained the benefit supposed
to have been conferred by it, the corporation will be bound,
notwithstanding the actual authority may never have been
granted. The public is not supposed nor required to know
the transactions which happen around the table where the
corporate board of directors or the stockholders are from
time to time convoked. Whether a particular officer
actually possesses the authority which he assumes to
exercise is frequently known to 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 ostensible
authority exercised by some of the corporate officers. It is
therefore reasonable, in a case where an officer of a
corporation has made a contract in its name, that the
646

corporation should be required, if it denies his authority, to

state such defense in its answer. By this means the
plaintiff is apprised of the fact that the agent's authority is
contested; and he is given. an opportunity to adduce
evidence showing either that the authority existed or that
the contract was ratified and approved.
We are of the opinion that the failure of the defendant
corporation to make any issue in its answer with regard to
the authority of Ramon J. Fernandez to bind it, and
particularly its failure to deny specifically under oath the
genuineness and due execution of the contracts sued upon,
have the effect of eliminating the question of his authority
from the case, considered as a matter of mere pleading. The
statute (sec. 103) plainly says that if a written instrument,
the foundation of the suit, is not denied upon oath, it shall
be deemed to be admitted. It is familiar doctrine that an
admission made in a pleading can not be controverted by
the party making such admission; and all proof submitted
by him contrary thereto or inconsistent therewith should
simply be ignored by the court, whether objection is
interposed by the opposite party or not. We can see no
reason why a constructive admission, created by the
express -words of the statute, should be considered to have
less effect than any other admission.
The parties to an action are required to submit their
respective contentions to the court in their complaint and
answer. These documents supply the materials which the
court must use in order to discover the points of contention
between the parties; and where the statute says that the
due execution of a document which supplies the foundation
of an action is to be taken as admitted unless denied under
oath, the failure of the defendant to make such denial must
be taken to operate as a conclusive admission, so long as
the pleadings remain in that form.
It is true that it is declared in section 109 of the Code of
Civil Profcedure that immaterial variances between the
647
VOL. 38, SEPTEMBER 24,1918. 647

allegations of a pleading and the proof shall be

distregarded and the facts shall be found according to the
evidence. The same section, however, recognizes the
necessity for an amendment of the pleadings, in all cases
where the variance is substantial, to bring them into
conformity with the facts proved. That section has, in our
opinion, by no means abrogated the general and
fundamental principle that relief can only be granted upon
matters which are put in issue by the pleadings. A
judgment must be in conformity with the case made in the
pleadings and established by the proof, and relief can not
be granted that is substantially inconsistent with either. A
party can no more succeed upon a case proved but not
alleged than upon a case alleged but not proved. This rule,
of course, operates with like effect upon both parties, and
applies equally to the defendant's special defense as to the
plaintiff's cause of action.
Of course this Court, under section 109 of the Code of
Civil Procedure, has authority even now to permit the
answer of the defendant to be amended; and if we believed
that the interests of justice so required, we would either
exercise that authority or remand the cause for a new trial
in the court below. As will appear further on in this
opinion, however, we think that the interests of justice will
best be promoted by deciding the case, without more ado,
upon the issues presented in the record as it now stands.
That we may not appear to have overlooked the matter,
we will observe that two cases are cited from California in
which the Supreme Court of the State has held that where
a release is pleaded by way of defense and evidence tending
to destroy its effect is introduced without objection, the
circumstance that it was not denied under oath is
immaterial. In the earlier of these cases, Crowley vs.
Railroad. Co. (60 Cal., 628), an action was brought against
a railroad company to recover damages for the death of
648

the plaintiff's minor son, alleged to have been killed by the

negligence of the defendant. The defendant company
pleaded by way of defense a release purporting to be signed
by the 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 to show that at the time he signed the
release, he was incompetent by reason of drunkenness to

bind himself thereby. It was held that inasmuch as this
evidence had been submitted by the plaintiff without
objection, it was proper for the court to consider it. We do
not question the propriety of that decision, especially as the
issue had been passed upon by a jury; but we believe that
the decision would have been more soundly planted if it
had been said that the incapacity of the plaintiff, due to his
drunken condition, was a matter which did not involve
either the genuineness or due execution of the release. Like
the defenses of fraud, coercion, imbecility, and mistake, it
was a matter which could be proved under the general
issue and did not have to be set up in a sworn reply. (Cf.
Moore vs. Copp, 119 Cal., 429, 432, 433.) A somewhat
similar explanation can, we think, be given of the case of
Clark vs. Child (66 Cal., 87), in which the rule declared in
the earlier case was followed. With respect to both
decisions we merely observe that upon the point of
procedure which they are supposed to maintain, the
reasoning of the court is in our opinion unconvincing.
We shall now consider the liability of the defendant
company on the merits just as if that liability had been
properly put in issue by a specific answer under oath
denying the authority of Fernandez to bind it. Upon this
question it must at the outset be 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 Corporation
Law that cor-
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VOL. 38, SEPTEMBER 24, 1918. 649

porate powers shall be exercised, and all corporate business

conducted. by the board of directors; and this principle is
recognized in the by-laws of the corporation in question
which contain a provision declaring that the power to make
contracts shall be vested in the board of directors, It is true
that it is also declared in the same by-laws that the
president shall have the power, and it shall be his duty, to
sign contracts; but this has reference rather to the
formality of reducing to proper form the contracts which
are authorized by the board and is not intended to confer
an independent power to make contracts binding on the
corporation.
The fact that the power to make corporate contracts is

thus vested in the board of directors does not signify that a
formal vote of the board must always be taken before
contractual liability can be fixed upon a corporation; for the
board, can create liability, like an individual, by other
means than by a formal expression of its will. In this
connection the case of Robert Gair Co. vs. Columbia Rice
Packing Co. (124 La., 194) is instructive. It there appeared
that the secretary of the defendant corporation had signed
an obligation on its behalf binding it as guarantor of the
perf ormance of an important contract upon which the
name of another corporation appeared as principal. The
defendant company set up by way of defense that its
secretary had no authority to bind it by such an
engagement. The court found that the guaranty was given
with the knowledge and consent of the president and
directors, and that this consent was given with as much
observance of formality as was customary in the
transaction of the business of the company. It was held
that, so far as the authority of the secretary was concerned,
the contract was binding. In discussing this point, the court
quoted with approval the f ollowing language from one of
its prior decisions:
"The authority of the subordinate agent, of a corporation
often depends upon the course of dealings which the com-
650

pany or its directors have sanctioned. It may be established

sometimes without reference to official record of the
proceedings of the board, by proof of the usage which the
company had permitted to grow up in the business, and of
the acquiescenee of the board charged with the duty of
supervising and controlling the company's business."
It appears in evidence, in the case now before us, that on
July 30, the date upon which the letter accepting the offer
of the Bclair films was dispatched, the board of directors of
the Orientalist Company convened in special session in the
office of Ramon J. Fernandez at the request of the latter.
There were present the four members, including the
president, who had already signified their consent to the
making of the contracts. At this meeting, as appears from
the minutes, Fernandez informed the board of the offer
which had been received from the plaintiff with reference
to the importation of films. The minutes add that the terms
of this offer' were approved; but at the suggestion of

Fernandez it was decided to call a special meeting of the
stockholders to consider the matter, and definitive action
was postponed.
The stockholders meeting was convoked upon September
18, 1913, upon which occasion Fernandez informed those
present of the offer in question and of the terms upon
which the films could be procured. He estimated that ±he
company would have to make an outlay of about P5,500 per
month, if the offer f or the two films should be accepted by
it.
The following extracts from the minutes of this meeting
are here pertinent:
"Mr. Fernandez informed the stockholders that, in view of the

urgency of the matter and for the purpose of avoiding that other
importers should get ahead of the corporation in this regard, he
and Messrs. B. Hernandez, Leon Monroy, and Dr. Papa met for
the purpose of considering the acceptance of the offer together
with the responsibilities attached thereto, made to the corporation
by the film manufacturers
651
VOL. 38, SEPTEMBER 24, 1918. 651

of Eclair and Milano of Paris and Italy respectively, inasmuch as

the first shipment of films was then expected to arrive.
"At the same time he informed the said stockholders that he
had already made arrangements with respect to renting said 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 a contract
with about nine cinematographs, big gains would be obtained
through such a step."
The possibility that the corporation might not see fit to

authorize the contract, or might for lack of funds be unable
to make the necessary outlay, was foreseen; and in such
contingency, the stockholders were informed, that the four
gentlemen above mentioned (Hernandez, Fernandez,
Monroy, and Papa) "would continue importing said films at
their own account and risk, and shall be entitled only to a
compensation of 10 per cent of their outlay in importing the
films, said payment to be made in shares of said
corporation, inasmuch as the corporation is lacking
available funds for the purpose, and also because there are
88 shares of stock remaining still unsold."
In view of this statement, the stockholders adopted a
resolution to the effect that the agencies of the Eclair and
Milano films should be accepted, if the corporation could
obtain the money with which to meet the expenditure
involved, and to this end appointed a committee to apply to
the bank for a credit. The evidence shows that an attempt
was made, on behalf of the corporation, to obtain a credit of
P10,000 from the Bank of the 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
which the failure of their committee to obtain a credit from
the bank was made known. A resolution was thereupon
passed to the effect that the company should pay to
Hernandez,
652

Fernandez, Monroy, and Papa an amount equal to 10 per

cent of their outlay in importing the films, said payment to
be made in shares of the company in accordance with the
suggestion made at the previous meeting. At the time this
meeting was held three shipment of the films had already
been received in Manila.
We believe it is a fair inference from the recitals of the
minutes of the stockholder's meeting of September 18, and
especially from the first paragraph above quoted, that this
body was then cognizant that the offer had already been
accepted in the name of the Orientalist Company and that
the films which were then expected to arrive were being
imported by virtue of such acceptance. Certainly four
members of the board of directors there present were aware
of this fact, as the letters accepting the offer had been sent
with their knowledge and consent. In view of this
circumstance, a certain doubt arises whether the
stockholders meant by their final resolution really to
repudiate the contracts which had been made in the name
of the company or whether they meant to utilize the
financial assistance of the four so-called importers in order
that the corporation might get the benefit of the contracts
for the films, just as it would have utilized the credit of the
bank if such credit had been extended. If such was the
intention of the stockholders their action amounted to a
virtual, though indirect, approval of the contracts. It is not,

however, necessary to found the judgment on this
interpretation of the stockholder's proceedings, inasmuch
as we think, for reasons presently to be stated, that the
corporation is bound, and we will here assume that in the
end the contracts were not approved by the stockholders.
It will be observed that Ramon J. Fernandez Was the
particular officer and member of the board of directors who
was most active in the effort to secure the films for the
corporation. The negotiations were conducted by him with
the knowledge and consent of other members of the board;
and
653
VOL. 38, SEPTEMBER 24, 1918. 653

the contract was made with their prior approval. As

appears from the papers in this record, Fernandez was the
person to whose keeping was confided the printed
stationery bearing the official style of the corporation, as
well as a rubber stencil with which the name of the
corporation could be signed to documents bearing its name.
Ignoring now, for a moment, the transactions of the
stockholders, and reverting to the proceedings of the board
of directors of the Orientalist Company; we find that upon
October 27, 1913, after Fernandez had departed from the
Philippine Islands, to be absent for many months, said
board adopted a resolution conferring the following among
other powers on Vicente Ocampo, the manager of the
Oriental theater, namely:
"(1) To rent a box for the films in the 'Kneedler

Building.'
" (4) T'o be in charge of the films and of the renting of
the same.
" (5) To advertise in the different newspapers that we
are importing films to be exhibited in the Cine
Oriental.
" (6) Not to deliver any film for rent without first
receiving the rental therefor or the guaranty for the
payment thereof.
"(7) To buy a book and cards for indexing the names of
the films.
" (10) Upon the motion of Mr. Ocampo, it was decided to
give ample powers to the Hon. R. Acufia to enter
into agreements with cinematograph proprietors in

the provinces for the purpose of renting films from
us."
It thus appears that the board of directors, before the

financial inability of the corporation to proceed with the
project was revealed, had already recognized the contracts
as being in existence and had proceeded to take the steps
necessary to utilize the films. Particularly suggestive is the
direction given at this meeting for the publication of
announcements in the newspapers to the effect that the
com-
654

pany was engaged in importing films. ln the light of all the

circumstances of the case, we are of the opinion that the
contracts in question were thus inferentially approved by
the company's board of directors and that the company is
bound unless the subsequent failure of the stockholders to
approve said contracts had the effect of abrogating the
liability thus created.
Both upon principle and authority it is clear that the
action of the stockholders, whatever its character, must be
ignored. The functions of the stockholders of a corporation
are, it must be remembered, of a limited nature. The_
theory of a corporation is that the stockholders may have
all the profits but shall turn over the complete
management of the enterprise to their representatives and
agents, called directors. Accordingly there is little for the
stockholders to do beyond electing directors, making by-
laws, and exercising certain other special powers defined
by law. In conformity with this idea it is settled that
contracts between a corporation and third persons must be
made by the directors and not by the stockholders. The
corporation, in such matters, is represented by the former
and not by the latter. (Cook on Corporations, sixth ed.,
secs. 708, 709.) This conclusion is entirely accordant with
the provisions of section 28 of our Corporation Law already
referred to. It results that where a meeting of the
stockholders is called f or the purpose of passing on the
propriety of making a corporate contract, its resolutions are
at most advisory and not in any wise binding on the board.
In passing upon the liability of a corporation in cases of
this kind it is always well to keep in mind the situation as
it 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 upon the external manifestations of
corporate consent. The integrity of commercial transactions
can only be maintained by holding the corporation strictly
655
VOL. 38, SEPTEMBER 24,1918. 655

to the liability fixed upon it by its agents in accordance

with law; and we would be sorry to announce a doctrine
which would permit the property of a man in the city of
Paris to be whisked out of his hands and carried into a
remote quarter of the earth without recourse against the
corporation whose name and authority had been used in
the manner disclosed in this case. As already observed, it.is
familiar doctrine that if a corporation knowingly permits
one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to
the public as possessing power to do those acts, the
corporation will, as against any one who has in good f aith
dealt with the corporation through such agent, be estopped
from denying his authority; and where it is said "if the
corporation permits" this means the same as "if the thing is
permitted by the directing power "of the corporation."
It being determined that the corporation is bound by the
contracts in question, it remains to consider the character
of the liability assumed by Ramon J. Fernandez, in affixing
his personal signature to said contracts. The question here
is whether Fernandez is liable jointly with the Orientalist
Company as a principal obligor, or whether his liability is
that of a guarantor merely.
As appears upon the face of the contracts, the signature
of Fernandez, in his individual capacity, is not in line with
the signature of the Orientalist Company, but is set off to
the left of the company's signature and somewhat below.
Observation teaches that it is customary for persons who
sign contracts in some capacity other than that of principal
obligor to place their signatures to one side; but we hardly
think that this circumstance alone would justify a court in
holding that Fernandez here took upon himself the
responsibility of a guarantor rather than that of a principal
obligor. We do, however, think that the form in which the
contract is signed raises a doubt as to what the real
intention was; and we feel justified, in looking to the

evidence
656

to discover that intention. ln -this connection it is entirely

clear, from the testimony of both Ramirez and Ramon J.
Fernandez, that the responsibility of the latter was
intended to be that of a guarantor. There is, to be sure, a
certain difference between these witnesses as to the nature
of this guaranty, inasmuch as Fernandez would have us
believe that his name was signed as a guaranty that the
contract would be approved by the corporation, while
Ramirez says that the name was put on the contract for the
purpose of guaranteeing, not the approval of the contract,
but its performance. We are convinced that the latter was
the real intention of the contracting parties.
We are not unmindful of the force of that rule of law
which declares that oral evidence is inadmissible to vary
the effect of a written contract. But it must be remembered
that ambiguities with respect to the meaning of the
language used by the parties may be explained by parol
evidence and we see no reason why an ambiguity arising,
as in this case, from the form in which the contract was
signed may not be explained in the same way. It is
certainly the duty of a court to seek the means, of giving
effect to the intention of the contracting parties rather than
to seek pretexts for defeating it.
If the name of a person not interested in the
performance of these contracts had appeared written in the
place where the name of Ramon J. Fernandez is signed,
and the evidence had shown that such name was there
written merely to attest the signature of the corporation, or
of Ramon J. Fernandez.as treasurer, no court would have
had any hesitation in holding that no liability had been
incurred though words were wanting to show how the
name was signed.
We are of the opinion that where a name is signed
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.
Judgment affirmed.
_______________
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2/17/2021 PHILIPPINE REPORTS ANNOTATED VOLUME 038

[No. 11897. September 24, 1918.]

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

1. PLEADING; DUE EXECUTION OF CONTRACT;

VOL. 38, SEPTEMBER 24, 1918. 635

Ramirez vs. Orientalist Co. and Fernandez.

of the defendant corporation to put in issue, by denial

2. ID.; CORPORATIONS; WANT OF AUTHORITY IN

3. ID.; AMENDMENTS.—While immaterial variances

ID.; ID.; SPECIAL DEFENSE.—The rule above stated

5. CORPORATIONS; CONTRACTS; POWER OF BOARD;

6. ID.; ID.; ACTION OF STOCKHOLDERS.—Where a

7. CONTRACTS; SURETY; PAROL EVIDENCE TO SHOW

636 PHILIPPINE REPORTS ANNOTATED

Ramirez vs. Orientalist Co. and Fernandez.,

was admissible to show that the intention was that he

APPEAL from a judgment of the Court of First Instance of

Sanz, Opisso & Luzuriaga for appellant "The Orientalist

The Orientalist Company is a corporation, duly organized

VOL. 38, SEPTEMBER 24, 1918. 637

by the suggestions and representations of Vicente Ocampo,

two days of this period remained, it appeared important for

638 PHILIPPINE REPORTS ANNOTATED

"We willingly accepted the offer under the terms communicated

Both of these letters also contained a request that Jose

VOL. 38, SEPTEMBER 24,1918. 639

through the bank, were accepted in the name of the

accepted in the name of the Orientalist Company by its

640 PHILIPPINE REPORTS ANNOTATED

list Company was declared to be a principal debtor and

adjust the rights of the defendants in accordance with such

VOL. 38, SEPTEMBER 24, 1918. 641

J. Fernandez, based upon his personal signature to the

"When an action is brought upon a written instrument and the

No sworn answer denying the genuineness and due

Company was filed in this case; but evidence was admitted

642 PHILIPPINE REPORTS ANNOTATED

solution of this problem makes it necessary to consider

to the following, among other authorities:

VOL. 38, SEPTEMBER 24, 1918. 643

the authority of the agent need not be. Upon this we

American States, and it is not by any means peculiar to the

644 PHILIPPINE REPORTS ANNOTATED

in any way challenge the authority of Ramon J. Fernandez

"If an action is brought against a corporation upon a contract

Again, says the same author:

In Simon vs. Calfee (80 Ark., 65), it was said:

"Though the power of the officers of a business corporation to

VOL. 38, SEPTEMBER 24,1918. 645

in its officers to bind it unless the defense was made on such

646 PHILIPPINE REPORTS ANNOTATED

corporation should be required, if it denies his authority, to

VOL. 38, SEPTEMBER 24,1918. 647

allegations of a pleading and the proof shall be

648 PHILIPPINE REPORTS ANNOTATED

the plaintiff's minor son, alleged to have been killed by the

release, he was incompetent by reason of drunkenness to

VOL. 38, SEPTEMBER 24, 1918. 649

porate powers shall be exercised, and all corporate business

The fact that the power to make corporate contracts is

650 PHILIPPINE REPORTS ANNOTATED

pany or its directors have sanctioned. It may be established

of this offer' were approved; but at the suggestion of