11/4/21, 9:04 PM J. F. RAMIREZ v. ORIENTALIST CO.

38 Phil. 634

[ G.R. No. 11897, September 24, 1918 ]

J. F. RAMIREZ, PLAINTIFF AND APPELLEE, VS. THE ORIENTALIST CO., AND

RAMON J. FERNANDEZ, DEFENDANTS AND APPELLANTS.

DECISION
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 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
father, placed in the hands of Ramon J. Fernandez 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.

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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 Ramirez is in the following terms:
"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.
In 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 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

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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 19, 1914, the date of
the institution of the action. In the judgment of the trial court the Orientalist
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 real
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 recover.

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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 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 genuineness 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 from 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 therefore becomes necessary for 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 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. In 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:

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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, 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 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 conformity with
the general principle
above stated that tha 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:

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"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 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 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

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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. Theise documents supply the materials which
the court musMise 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 Procedure that
immaterial variances between the allegations of a pleading and the proof shall be
disregarded 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 th6 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 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
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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 decision's 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 corporate 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 performance 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 following 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 company or its directors have sanctioned. It may be
established sometimes without reference to official record of the proceedings of the

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board, by proof of the usage

which the company had permitted to grow up in the
business, and of the acquiescence of the board charged with the duty of supervising1
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 Eclair 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 the company would have
to make an outlay of about P5,500 per
month, if the offer for 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
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

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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. 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
tliey 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 stock- holders 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 stock-holder'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 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 stock-holders, 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) To 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.

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"(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. Acuña 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 company was
engaged in importing films. In 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., sees. 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 for 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 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 faith 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."

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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 to
discover that intention. In 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 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 defendants, the Orientalist Company and Ramon J. Fernandez; nor does

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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, Avanceña, and Fisher, JJ., concur.

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