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.

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 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. 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 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 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 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. 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 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 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, Avanceña and Fisher, JJ., concur.