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EN BANC

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

J. F. RAMIREZ , plaintiff-appellee, vs . THE ORIENTALIST CO., and


FERNANDEZ defendants-appellants.
RAMON J. FERNANDEZ,

Jose Moreno Lacalle, for appellant Fernandez.


Sanz, Opisso & Luzuriaga for appellant "The Orientalist Co."
No appearance for appellee.

SYLLABUS

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 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 of cer to
execute the contract, since the authority of the of cer 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.
4. ID.; ID.; SPECIAL DEFENSE The rule above stated 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 of cer of the
corporation. Rati cation 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
WHICH 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
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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 was admissible to show that the
intention was that he should be bound as surety and not jointly with the other party.

DECISION

STREET J :
STREET, p

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 lms. 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 lms 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 lms, namely, the " Eclair Films" and the "Milano
Films ;" and negotiations were begun with said of cials of the Orientalist Company by
Jose Ramirez, as agent of the plaintiff, for the purpose of placing the exclusive agency
of these lms 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
chie y 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 lms. 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 lms. 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 lms
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
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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 lms, would pay the manufacturer, and take care that the lms
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 lm 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 lms would have to be made directly between the lm-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 lms 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 lms 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 rst 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 by the latter with his own funds. As the drafts had thus been
paid by B. Hernandez, the lms 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 lms 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 lms from Paris, and it is these shipments
which have given occasion for the present action. All of the drafts accompanying these
lms 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
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was nally 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 lms 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 lms 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 nd 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.
In the discussion which is to follow we shall consider, rst, 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 speci cally denied
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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 led 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:
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 af xed to the
obligation by an agent, and no suf cient af davit was led 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.
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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 af davit. 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 of cer 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 veri ed by oath. But it should not here escape
observation that section 103 also requires in conformity with the general principle
above stated that the denial contemplated in that section shall be speci c. An attack
on the instrument in general terms is insuf cient, even though the answer is under oath.
(Songco vs. Sellner, 37 Phil. Rep., 254.)
In the rst edition of a well-known treatise on the law of corporations we nd 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 of cer 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 of cers 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 of cers to bind it unless the defense was made on
such ground."

The rule has been applied where the question was whether a corporate of cer,
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
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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 of cers 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 bene t
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 of cer 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 of cers. It is therefore reasonable, in a case where
an of cer 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 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 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 the general and fundamental
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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 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 speci c 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
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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 xed 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 of cial 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 acquiescence 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 Eclair lms 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 signi ed 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 lms. 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 lms 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 lms 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 lm
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 lms after they have been once
exhibited in the Cine Oriental, and that the corporation could very well meet the
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expenditure involved and net a certain pro t, 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 t 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
lms at their own account and risk, and shall be entitled only to a compensation of 10
per cent of their outlay in importing the lms, 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 lms 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 share-holders 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 lms, 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 lms 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 rst 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 lms 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 nal resolution really to
repudiate the contracts which had been made in the name of the company or whether
they meant to utilize the nancial assistance of the four so-called importers in order
that the corporation might get the bene t of the contracts for the lms, just a 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 of cer and
member of the board of directors who was most active in the effort to secure the lms
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 con ded the printed stationery bearing the of cial 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.
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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 nd 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 lm for rent without rst 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. Acuna 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 nancial 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 lms. 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 lms. 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 ignore. 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 pro ts 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 de ned 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 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 xed 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
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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 of cers, 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."

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
af xing 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 justi ed, 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 af xed. 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,
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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 the present action involve any question as to the undertaking of
Fernandez and his three associates to effect the importation of the lms 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 af rmed, with costs equally against the two
appellants. So ordered.
Torres, Johnson, Malcolm, Avancea and Fisher, JJ., concur.

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