66 RAMIREZ V ORIENTALIST CO.

AND AUTHOR: PAGCALIWAGAN

FERNANDEZ NOTES: Appeal from a judgment of the Court
Topic: Control and Management of of First Instance of Manila
Corporation
Ponente: Street, J.
FACTS:
 Orientalist Company was engaged in the business of maintain and conducting a theater in
Manila for the exhibition of cinematographic films, desired to be the exclusive agent of
Ramirez, who is based in Paris, for 2 film outfits – Éclair Films and Milano Films.
 Through the active involvement and negotiation of Ramon Fernandez, a director of
Orientalist and also its treasurer, Orientalist was able to secure an offer. The terms of
which were acceptable to the Board as well as to the stockholders.
 The acceptance of the terms of the offer was decided during an informal meeting of the
board, and conveyed to Ramirez in 2 letters signed only by Fernandez, both in his
individual and his capacity as treasurer of Orientalist.
 Orientalist was not financially capable to comply with the obligations set forth in the
agency contract and about this time films had already been delivered to the company.
 2 stockholders’ meetings were organized:
 1st meeting – adopted a resolution approving the action of the board on the offer
 2nd meeting – raising the contingency of the lack of funds and the proviso that the
4 officers involved, including Fernandez would continue importing the films
using their own funds.
 Ramirez sued Orientalist and Fernandez for what is due on the contract.
ISSUE/S:
1. Whether or not the treasurer has an independent authority to bind the respondent
company by signing its name to the letters in question.
2. Whether or not stockholders can ratify the contract.
HELD:
1. NO.
2. NO.
RATIO:
1. 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. This principle is
recognized in the by-laws of the corporation in this case 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 is in reference to the formality of
reducing to proper form the contracts which are authorized by the board of directors. It is
not intended to confer to the president an independent power to make contracts binding
on the corporation.
2. The functions of the stockholders are limited. 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. There is little for the
stockholders to do beyond electing directors, making by-laws, and exercising certain
special powers defined by law. Contracts between a corporation and a 3rd person must be
made by directors and not stockholders. 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.
DOCTRINE: Contracts between a corporation and a 3rd person must be made by directors and
not stockholders.