G.R. No.

11897 September 24, 1918

J. F. RAMIREZ, plaintiff-appellee,
vs.
THE ORIENTALIST CO., and RAMON J. FERNANDEZ, defendants-appellants.

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 theatre 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 treasure, was
chiefly active in this matter, being moved by the suggestions and representations of Vicente
Ocampo, manage of the Oriental Theater, to the effect that the securing of the 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 detail the terms upon which
the plaintiff would undertake to supply from Paris the aforesaid films. This officer was declared to be
good until the end of July; and as only about for the Orientalist Company to act on 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 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 office 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 portion of the two letters of acceptance written by R. J. Fernandez
to Jose Ramirez is in the following terms:

We willingly accepted the officer 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 singed by R. J. Fernandez, in the capacity of treasurer:

THE ORIENTALIST COMPANY,

By R. J. FERNANDEZ,
Treasurer,

R. J. FERNANDEZ.

Page 1 of 8
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 clothed 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 officer 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 presented 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 he 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 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 non-payment.

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 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 is
exclusively and primarily liable 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, 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

Page 2 of 8
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 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 administration
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 has 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 buy 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 his authority to
make the contract in behalf of the defendant and of the power 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 mining 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 as 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 singing. 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 as 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 on 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 was 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.
Page 3 of 8
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 is should not here escape observation that section 103 also
requires in 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 laws 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 brought and where it intends to defend on the ground
of 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 corporate officer, having admitted
power to make a contract, had in the particular instance exceeded that authority, (Merill 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 officer 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 execution of the contracts sued upon, have the
effect of elimination 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

Page 4 of 8
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 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. And judgment must be in conformity with the case made 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 nor proved. This rule of course operates with
like effect upon both parties, and applies equality to the defendants special defense as to the
plaintiffs 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 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 in which the rule declared in the earlier case was followed. With respect to
both decisions which we merely observe that upon 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
go 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 by signing its name to the letters in question. It is declared in section 28 of
the Corporation Law that corporate power 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 contract; but this has reference rather to the
formality of reducing to proper form the contract which are authorized by the board and is not
intended to confer an independent power to make contract binding on the corporation.

The fact that the power to make corporate contract 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. If 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 is 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 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 form 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 director have sanctioned. It may be established sometimes

Page 5 of 8
 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 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 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 contract. 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 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 definite 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 the
bank declined to grant his 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 stockholders meeting of
September 18, and especially from the first paragraph above quoted, that this body was then
cognizant that the officer 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 letter accepting the offer had been sent with their knowledge and consent. In view of this
circumstance, a certain doubt arises whether they meant to utilize the financial assistance of the
four so-called importers in order that the corporation might bet the benefit of the contract 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 contract. It is not however, necessary to found the judgment on this interpretation of the
stockholders 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 contract 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
Page 6 of 8
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 who keeping was confided the printed stationery bearing the official style of the
corporation, as well as 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 "Kneeler 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.
(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. Acua
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 contract 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 contract between a corporation and third person must be made by
the director 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 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 corporations 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 officer, or any other agent, to do acts within the scope
of an apparent authority, and thus hold 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 contract in question, it remains to consider
the character of the liability assumed by R. J. Fernandez, in affixing his personal signature to said
contract. The question here is whether Fernandez is liable jointly with the Orientalists 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 who sign contracts in some capacity other than that of principal obligor to
place their signature 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

Page 7 of 8
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 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 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 H. Fernandez; nor does the present 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 appellant. So ordered.

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

Page 8 of 8