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[ GR No. 11897, Sep 24, 1918 ]



38 Phil. 634

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




The Orientalist Company is a corporation, duly organized under the laws of the Philippine Islands, and in 1913 and 1914, the time of the occurrences which gave rise to this lawsuit, was engaged in the business of maintaining and conducting a theater in the city of Manila for the exhibition of cinematographic films. Under the articles of incorporation the company is authorized to manufacture, buy,, or otherwise obtain all accessories necessary for conducting such a business. The plaintiff J. F. Ramirez was, at the same time, a resident of the city of Paris, France, and was engaged in the business of marketing films for a manufacturer or manufacturers, there engaged in the production or distribution of cinematographic material. In this enterprise the plaintiff was represented in the city of Manila by his son, Jose Ramirez.

In the month of July, 1913, certain of the directors of the Orientalist Company, in Manila, became apprised of the fact that the plaintiff in Paris had control of the agencies for two different marks of films, namely, the "Eclair Films" and the "Milano Films;" and negotiations were begun with said officials of the Orientalist Company by Jose Ramirez, as agent of the plaintiff, for the purpose of placing the exclusive agency of these films in the hands of the Orientalist Company. The defendant Ramon J. Fernandez, one of the directors of the Orientalist Company and also its treasurer, was chiefly active in this matter, being moved by the suggestions and representations of Vicente Ocampo, manager of the Oriental Theater, to the effect that the securing of the exclusive agency of said films was necessary to the success of the corporation.

Near the end of July of the year aforesaid, Jose Ramirez, as representative of his father, placed in the hands of Ramon J. Fernandez an offer, dated July 4, 1913, stating in detail the terms upon which the plaintiff would undertake to supply from Paris the aforesaid films. This offer was declared to be good until the end of July; and as only about two days of this period remained, it appeared important for the Orientalist Company to act upon the matter speedily, if it desired to take advantage of said offer. Accordingly, Ramon J. Fernandez, on July 30, had an informal conference with all the members of the company's board of directors except one, and with the approval of those with whom he had communicated, addressed a letter to Jose Ramirez, in Manila, accepting the offer contained in the memorandum of July 4th for the exclusive agency of the Eclair films. A few days later, on August 5, he addressed another letter couched in the same terms, likewise accepting the offer of the exclusive agency for the Milano films.

The memorandum offer contained a statement of the price at which the films would be sold, the quantity which the representative of each was required to take, and information concerning the manner and intervals of time for the respective shipments. The expenses of packing, transportation and other incidentals were to be at the cost of the purchaser. There was added a clause in which J. F. Ramirez described his function in such transactions as that of a commission agent and stated that he would see to the prompt shipment of the films, would pay the manufacturer, and take care that the films were insured his commission for such services being fixed at 5 per cent.

What we consider to be the most material portion of the two letters of acceptance written by R. J. Fernandez to Jose Ramirez is in the following terms:

"We willingly accepted the offer under the terms communicated by your father in his letter dated at Paris on July 4th of the present year."

These communications were signed in the following form, in which it will be noted the separate signature of R. J. Fernandez, as an individual, is placed somewhat below and to the left of the signature of the Orientalist Company as signed by R. J. Fernandez, in the capacity of treasurer:

"The Orientalist Company,
"By R. J. Fernandez,

"R. J. Fernandez."

Both of these letters also contained a request that Jose Ramirez should at once telegraph to his father in Paris that his offer had been accepted by the Orientalist Company and instruct him to make a contract with the film companies, according to the tenor of the offer, and in the capacity of attorney-in-fact for the Orientalist Company. The idea behind the latter suggestion apparently was that the contract for the films would have to be made directly between the film-producing companies and the Orientalist Company; and it seemed convenient, in order to save time, that the Orientalist Company should clothe J. F. Ramirez with full authority as its attorney-in-fact. This idea was never given effect; and so far as the record shows, J. F. Ramirez himself procured the films upon his own responsibility, as he indicated in the offer of July 4 that he would do, with the result that the only contracting parties in this case are J. F. Ramirez, of the one part, and the Orientalist Company, with Ramon J. Fernandez, of the other.

In due time the films began to arrive in Manila, a draft for the cost and expenses incident to each shipment being attached to the proper bill of lading. It appears that the Orientalist Company was without funds to meet these obligations and the first few drafts were dealt with in the following manner: The drafts, upon presentment through the bank, were accepted in the name of the Orientalist Company by its president B. Hernandez, and were taken up by the latter with his own funds. As the drafts had thus been paid by B. Hernandez, the films which had been procured by the payment of said drafts were treated by him as his own property; and they in fact never came into the actual possession of the Orientalist Company as owner at all, though it is true Hernandez rented the films to the Orientalist Company and they were exhibited by it in the Oriental Theater under an arrangement which was made between him and the theater's manager.

During the period between February 27, 1914, and April 30, 1914, there arrived in the city of Manila several remittances of films from Paris, and it is these shipments which have given occasion for the present action. All of the drafts accompanying these films were drawn, as on former occasions, upon the Orientalist Company; and all were accepted in the name of the Orientalist Company by its president, B. Hernandez, except the last, which was accepted by B. Hernandez individually. None of the drafts thus accepted were taken up by the drawee or by B. Hernandez when they fell due; and it was finally necessary for the plaintiff himself to take them up as dishonored by nonpayment.

Thereupon this action was instituted by the plaintiff on May 19, 1914, against the Orientalist Company, and Ramon J. Fernandez. As the films which accompanied the dishonored drafts were liable to deteriorate, the court, upon application of the plaintiff, and apparently without opposition on the part of the defendants, appointed a receiver who took charge of the films and sold them. The amount realized from this sale was applied to the satisfaction of the plaintiff's claim and was accordingly delivered to him in part payment thereof. At trial judgment was given for the balance due to the plaintiff, namely, P6,018.93, with interest from May 19, 1914, the date of the institution of the action. In the judgment of the trial court the Orientalist Company was declared to be a principal debtor and Ramon J. Fernandez was declared to be liable subsidiarily as guarantor. From this judgment both of the parties defendant appealed.

In this Court neither of the parties appellant make any question with respect to the right of the plaintiff to recover from somebody the amount awarded by the lower court; but each of the defendants insists the other is liable for the whole. It results that the real contention upon this appeal is between the two defendants.

It is stated in the brief of the appellant Ramon J. Fernandez, and the statement is not challenged by the Orientalist Company, that the judgment has already been executed as against the company and that the full amount has been made, so that if this Court should find that the Orientalist Company is exclusively and primarily liable for the entire indebtedness, the question as to the liability of Ramon J. Fernandez would be academic. But if the latter is liable as principal obligor for the whole or any part of the debt, it will be necessary to modify the judgment in order to adjust the rights of the defendants in accordance with such finding.

It will be noted that the action is primarily founded upon the liability created by the letters dated July 30th and August 5, 1913, in connection with the plaintiff's offer of July 4, 1913; and both of the letters mentioned are copied into the complaint as the foundation of the action. The action is not based upon the dishonored drafts which were accepted by B. Hernandez in the name of the Orientalist Company; and although these drafts, as well as the last draft, which was accepted by B. Hernandez individually, have been introduced in evidence, this was evidently done for the purpose of proving the amount of damages which the plaintiff was entitled to recover.

In the discussion which is to follow we shall consider, first, the question of the liability of the corporation upon the contracts contained in the letters of July 30 and August 5, 1913, and, secondly, the question of the liability of Ramon J. Fernandez, based upon his personal signature to the same documents.

As to the liability of the corporation a preliminary point of importance arises upon the pleadings. The action, as already stated, is based upon documents purporting to be signed by the Orientalist Company, and copies of the documents are set out in the complaint. It was therefore incumbent upon the corporation, if it desired to question the authority of Fernandez to bind it, to deny the due execution of said contracts under oath, as prescribed in section 103 of the Code of Civil Procedure. Said section, in the part pertinent to the situation now under consideration, reads as follows:

"When an action is brought upon a written instrument and the complaint contains or has annexed a copy of such instrument, the genuineness and due execution of the instrument shall be deemed admitted, unless specifically denied under oath in the answer."

No sworn answer denying the genuineness and due execution of the contracts in question or questioning the authority of Ramon J. Fernandez to bind the Orientalist Company was filed in this case; but evidence was admitted without objection from the plaintiff, tending to show that Ramon J. Fernandez had no such authority. This evidence consisted of extracts from the minutes of the proceedings of the company's board of directors and also of extracts from the minutes of the proceedings of the company's stockholders, showing that the making of this contract had been under consideration in both bodies and that the authority to make the same had been withheld by the stockholders. It therefore becomes necessary for us to consider whether the admission resulting from the failure of the defendant company to deny the execution of the contracts under oath is binding upon it for all purposes of this lawsuit, or whether such failure should be considered a mere irregularity of procedure which was waived when the evidence referred to was admitted without objection from the plaintiff. The proper solution of this problem makes it necessary to consider carefully the principle underlying the provision above quoted.

That the situation was one in which an answer under oath denying the authority of the agent should have been interposed, supposing that the company desired to contest this point, is not open to question. In the case of Merchant vs. International Banking Corporation (6 Phil. Rep., 314), it appeared that one Brown had signed the name of the defendant bank as guarantor of a promissory note. The bank was sued upon this guaranty and at the hearing attempted to prove that Brown had no authority to bind the bank by such contract. It was held that, by failing to deny the contract under oath, the bank had admitted the genuineness and due execution thereof, and that this admission extended not only to the authenticity of the signature of Brown but also to his authority. Said Justice Willard: "The failure of the defendant to deny the genuineness and due execution of this guaranty under oath was an admission, not only of the signature of Brown, but also of his authority to make the contract in behalf of the defendant and of the power of the defendant to enter into such a contract."

The rule thus stated is in entire accord with the doctrine prevailing in the United States, as will be seen by reference to the following, among other authorities:

The case of Barrett Mining Co. vs. Tappan (2 Colo., 124) was an action against a corporation upon an appeal bond. The name of the company had been affixed to the obligation by an agent, and no sufficient affidavit was filed by the corporation questioning its signature or the authority of the agent to bind the company. It was held that the plaintiff did not have to prove the due execution of the bond and that the corporation was to be taken as admitting the authority of the agent to make the signature. Among other things the court said: "But it is said that the authority of Barrett to execute the bond is distinguishable from the signing and, although the signature must be denied under oath, the authority of the agent need not be. Upon this we observe that the statute manifestly refers to the legal effect of the signature, rather than the manual act of signing. If the name of the obligor, in a bond, is subscribed by one in his presence, and by his direction, the effect is the same as if his name should be signed with his own hand, and under such circumstances we do not doubt that the obligor must deny his signature under oath, in order to put the obligee to proof of the fact. Quit facit per aliam facit per se, and when the name is signed by one thereunto authorized, it is as much the signature of the principal as if written with his own hand. Therefore, if the principal would deny the authority of the agent, as the validity of the signature is thereby directly attacked, the denial must be under oath."

In Union Dry Company vs. Reid (26 Ga., 107), an action was brought upon a promissory note purporting to have been given by one A. B., as the treasurer of the defendant company. Said the court: "Under the Judiciary Act of 1799, requiring the defendant to deny on oath an instrument of writing, upon which he is sued, the plea in this case should have been verified.

If the person who signed this note for the company, and upon which they are sued, was not authorized to make it, let them say so upon oath, and the onus is then on the plaintiff to overcome the plea."

It should be noted that the provision contained in section 103 of our Code of Civil Procedure is embodied in some form or other in the statutes of probably all of the American States, and it is not by any means peculiar to the laws of California, though it appears to have been taken immediately from the statutes of that State. (Secs. 447 448, California Code of Civil Procedure.)

There is really a broader question here involved than that which relates merely to the formality of verifying the answer with an affidavit. This question arises from the circumstance that the answer of the corporation does not in any way challenge the authority of Ramon J. Fernandez to bind it by the contracts in question and does not set forth, as a special defense, any such lack of authority in him. Upon well established principles of pleading lack of authority in an officer of a corporation to bind it by a contract executed by him in its name is a defense which should be specially pleaded and this quite apart from the requirement, contained in section 103, that the answer setting up such defense should be verified, by oath. But it should not here escape observation that section 103 also requires in conformity with the general principle above stated that tha denial contemplated in that section shall be specific. An attack on the instrument in general terms is insufficient, even though the answer is under oath. (Songco vs. Sellner, 37 Phil. Rep., 254.)

In the first edition of a well-known treatise on the law of corporations we find the following proposition:

"If an action is brought against a corporation upon a contract alleged to be its contract, if it desires to set up the defense that the contract was executed by one not authorized as its agent, it must plead non est factum." (Thompson on Corporations, 1st ed., vol. 6, sec. 7631.)

Again, says the same author:

"A corporation can not avail itself of the defense that it had no power to enter into the obligation to enforce which the suit is brought, unless it pleads that defense. This principle applies equally where the defendant intends to challenge the power of its officer or agent to execute in its behalf the contract upon which the action is brought and where it intends to defend on the ground of a total want of power in the corporation to make such a contract." (Opus citat. sec. 7619.)

In Simon vs. Calfee (80 Ark., 65), it was said:

"Though the power of the officers of a business corporation to issue negotiable paper in its name is not presumed, such corporation can not avail itself of a want of power in its officers to bind it unless the defense was made on such ground."

The rule has been applied where the question was whether a corporate officer, having admitted power to make a contract, had in the particular instance exceeded that authority, (Merrill vs. Consumers' Coal Co., 114 N. Y., 216); and it has been held that where the answer in a suit against a corporation on its note relies simply on the want of power of the corporation to issue notes, the defendant can not afterwards object that the plaintiff has not shown that the officers executing the note were empowered to do so. (Smith vs. Eureka Flour Mills Co., 6 Cal., 1.)

The reason for the rule enunciated in the foregoing authorities will, we think, be readily appreciated. In dealing with corporations the public at large is bound to rely to a large extent upon outward appearances. If a man is found acting for a corporation with the external indicia of authority, any person, not having notice of want of authority, may usually rely upon those appearances; and if it be found that the directors had permitted the agent to exercise that authority and thereby held him out as a person competent to bind the corporation, or had acquiesced in a contract and retained the benefit supposed to have been conferred by it, the corporation will be bound, notwithstanding the actual authority may never have been granted. The public is not supposed nor required to know the transactions which happen around the table where the corporate board of directors or the stockholders are from time to time convoked. Whether a particular officer actually possesses the authority which he assumes to exercise is frequently known to very few, and the proof of it usually is not readily accessible to the stranger who deals with the corporation on the faith of the ostensible authority exercised by some of the corporate officers. It is therefore reasonable, in a case where an officer of a corporation has made a contract in its name, that the corporation should be required, if it denies his authority, to state such defense in its answer. By this means the plaintiff is apprised of the fact that the agent's authority is contested; and he is given an opportunity to adduce evidence showing either that the authority existed or that the contract was ratified and approved.

We are of the opinion that the failure of the defendant corporation to make any issue in its answer with regard to the authority of Ramon J. Fernandez to bind it, and particularly its failure to deny specifically under oath the genuineness and due execution of the contracts sued upon, have the effect of eliminating the question of his authority from the case, considered as a matter of mere pleading. The statute (sec. 103) plainly says that if a written instrument, the foundation of the suit, is not denied upon oath, it shall be deemed to be admitted. It is familiar doctrine that an admission made in a pleading can not be controverted by the party making such admission; and all proof submitted by him contrary thereto or inconsistent therewith should simply be ignored by the court, whether objection is interposed by the opposite party or not. We can see no reason why a constructive admission, created by the express words of the statute, should be considered to have less effect than any other admission.

The parties to an action are required to submit their respective contentions to the court in their complaint and answer. Theise documents supply the materials which the court musMise in order to discover the points of contention between the parties; and where the statute says that the due execution of a document which supplies the foundation of an action is to be taken as admitted unless denied under oath, the failure of the defendant to make such denial must be taken to operate as a conclusive admission, so long as the pleadings remain in that form.

It is true that it is declared in section 109 of the Code of Civil Procedure that immaterial variances between the allegations of a pleading and the proof shall be disregarded and the facts shall be found according to the evidence. The same section, however, recognizes the necessity for an amendment of the pleadings, in all cases where the variance is substantial, to bring them into conformity with the facts proved. That section has, in our opinion, by no means abrogated th6 general and fundamental principle that relief can only be granted upon matters which are put in issue by the pleadings. A judgment must be in conformity with the case made in the pleadings and established by the proof, and relief can not be granted that is substantially inconsistent with either. A party can no more succeed upon a case proved but not alleged than upon a case alleged but not proved. This rule, of course, operates with like effect upon both parties, and applies equally to the defendant's special defense as to the plaintiff's cause of action.

Of course this Court, under section 109 of the Code of Civil Procedure, has authority even now to permit the answer of the defendant to be amended; and if we believed that the interests of justice so required, we would either exercise that authority or remand the cause for a new trial in the court below. As will appear further on in this opinion, however, we think that the interests of justice will best be promoted by deciding the case, without more ado, upon the issues presented in the record as it now stands.

That we may not appear to have overlooked the matter, we will observe that two cases are cited from California in which the Supreme Court of the State has held that where a release is pleaded by way of defense and evidence tending to destroy its effect is introduced without objection, the circumstance that it was not denied under oath is immaterial. In the earlier of these cases, Crowley vs. Railroad Co. (60 Cal., 628), an action was brought against a railroad company to recover damages for the death of the plaintiff's minor son, alleged to have been killed by the negligence of the defendant. The defendant company pleaded by way of defense a release purporting to be signed by the plaintiff, and in its answer inserted a copy of the release. The execution of the release was not denied under oath; but at the trial evidence was submitted on behalf of the plaintiff tending to show that at the time he signed the release, he was incompetent by reason of drunkenness to bind himself thereby. It was held that inasmuch as this evidence had been submitted by the plaintiff without objection, it was proper for the court to consider it We do not question the propriety of that decision, especially as the issue had been passed upon by a jury; but we believe that the decision would have been more soundly planted if it had been said that the incapacity of the plaintiff, due to his drunken condition, was a matter which did not involve either the genuineness or due execution of the release. Like the defenses of fraud, coercion, imbecility, and mistake, it was a matter which could be proved under the general issue and did not have to be set up in a sworn reply. (Cf. Moore vs. Copp, 119 Cal., 429, 432, 433.) A somewhat similar explanation can, we think, be given of the case of Clark vs. Child (66 Cal., 87), in which the rule declared in the earlier case was followed. With respect to both decision's we merely observe that upon the point of procedure which they are supposed to maintain, the reasoning of the court is in our opinion unconvincing.

We shall now consider the liability of the defendant company on the merits just as if that liability had been properly put in issue by a specific answer under oath denying the authority of Fernandez to bind it. Upon this question it must at the outset be premised that Ramon J. Fernandez, as treasurer, had no independent authority to bind the company by signing its name to the letters in question. It is declared in section 28 of the Corporation Law that corporate powers shall be exercised, and all corporate business conducted by the board of directors; and this principle is recognized in the by-laws of the corporation in question which contain a provision declaring that the power to make contracts shall be vested in the board of directors. It is true that it is also declared in the same by-laws that the president shall have the power, and it shall be his duty, to sign contracts; but this has reference rather to the formality of reducing to proper form the contracts which are authorized by the board and is not intended to confer an independent power to make contracts binding on the corporation.

The fact that the power to make corporate contracts is thus vested in the board of directors does not signify that a formal vote of the board must always be taken before contractual liability can be fixed upon a corporation; for the board can create liability, like an individual, by other means than by a formal expression of its will. In this connection the case of Robert Gair Co. vs. Columbia Rice Packing Co. (124 La., 194) is instructive. It there appeared that the secretary of the defendant corporation had signed an obligation on its behalf binding it as guarantor of the performance of an important contract upon which the name of another corporation appeared as principal. The defendant company set up by way of defense that its secretary had no authority to bind it by such an engagement. The court found that the guaranty was given with the knowledge and consent of the president and directors, and that this consent was given with as much observance of formality as was customary in the transaction of the business of the company. It was held that, so far as the authority of the secretary was concerned, the contract was binding. In discussing this point, the court quoted with approval the following language from one of its prior decisions:

"The authority of the subordinate agent of a corporation often depends upon the course of dealings which the company or its directors have sanctioned. It may be established sometimes without reference to official record of the proceedings of the board, by proof of the usage which the company had permitted to grow up in the business, and of the acquiescence of the board charged with the duty of supervising1 and controlling the company's business."

It appears in evidence, in the case now before us, that on July 30, the date upon which the letter accepting the offer of the Eclair films was dispatched, the board of directors of the Orientalist Company convened in special session in the office of Ramon J. Fernandez at the request of the latter. There were present the four members, including the president, who had already signified their consent to the making of the contracts. At this meeting, as appears from the minutes, Fernandez informed the board of the offer which had been received from the plaintiff with reference to the importation of films. The minutes add that the terms of this offer were approved; but at the suggestion of Fernandez it was decided to call a special meeting of the stockholders to consider the matter, and definitive action was postponed.

The stockholders meeting was convoked upon September 18, 1913, upon which occasion Fernandez informed those present of the offer in question and of the terms upon which the films could be procured. He estimated that the company would have to make an outlay of about P5,500 per month, if the offer for the two films should be accepted by it.

The following extracts from the minutes of this meeting are here pertinent:

"Mr. Fernandez informed the stockholders that, in view of the urgency of the matter and for the purpose of avoiding that other importers should get ahead of the corporation in this regard, he and Messrs. B. Hernandez, Leon Monroy, and Dr. Papa met for the purpose of considering the acceptance of the offer together with the responsibilities attached thereto, made to the corporation by the film manufacturers of Eclair and Milano of Paris and Italy respectively, inasmuch as the first shipment of films was then expected to arrive.

"At the same time he informed the said stockholders that he had already made arrangements with respect to renting said films after they have been once exhibited in the Cine Oriental, and that the corporation could very well meet the expenditure involved and net a certain profit, but that, if we could enter into a contract with about nine cinematographs, big gains would be obtained through such a step."

The possibility that the corporation might not see fit to authorize the contract, or might for lack of funds be unable to make the necessary outlay, was foreseen; and in such contingency, the stockholders were informed, that the four gentlemen above mentioned (Hernandez, Fernandez, Monroy, and Papa) "would continue importing said films at their own account and risk, and shall be entitled only to a compensation of 10 per cent of their outlay in importing the films, said payment to be made in shares of said corporation, inasmuch as the corporation is lacking available funds for the purpose, and also because there are 88 shares of stock remaining still unsold."

In view of this statement, the stockholders adopted a resolution to the effect that the agencies of the Eclair and Milano films should be accepted, if the corporation could obtain the money with which to meet the expenditure involved, and to this end appointed a committee to apply to the bank for a credit. The evidence shows that an attempt was made, on behalf of the corporation, to obtain a credit of P10,000 from the Bank of the Philippine Islands for the purpose indicated, but that the bank declined to grant this credit. Thereafter another special meeting of the shareholders of the defendant corporation was called at which the failure of their committee to obtain a credit from the bank was made known. A resolution was thereupon passed to the effect that the company should pay to Hernandez. Fernandez, Monroy, and Papa an amount equal to 10 per cent of their outlay in importing the films, said payment to be made in shares of the company in accordance with the suggestion made at the previous meeting. At the time this meeting was held three shipment of the films had already been received in Manila.

We believe it is a fair inference from the recitals of the minutes of the stockholder's meeting of September 18, and especially from the first paragraph above quoted, that this body was then cognizant that the offer had already been accepted in the name of the Orientalist Company and that the films which were then expected to arrive were being imported by virtue of such acceptance. Certainly four members of the board of directors there present were aware of this fact, as the letters accepting the offer had been sent with their knowledge and consent. In view of this circumstance, a certain doubt arises whether the stockholders meant by their final resolution really to repudiate the contracts which had been made in the name of the company or whether tliey meant to utilize the financial assistance of the four so-called importers in order that the corporation might get the benefit of the contracts for the films, just as it would have utilized the credit of the bank if such credit had been extended. If such was the intention of the stock- holders their action amounted to a virtual, though indirect, approval of the contracts. It is not, however, necessary to found the judgment on this interpretation of the stock-holder's proceedings, inasmuch as we think, for reasons presently to be stated, that the corporation is bound, and we will here assume that in the end the contracts were not approved by the stockholders.

It will be observed that Ramon J. Fernandez was the particular officer and member of the board of directors who was most active in the effort to secure the films for the corporation. The negotiations were conducted by him with the knowledge and consent of other members of the board; and the contract was made with their prior approval. As appears from the papers in this record, Fernandez was the person to whose keeping was confided the printed stationery bearing the official style of the corporation, as well as a rubber stencil with which the name of the corporation could be signed to documents bearing its name.

Ignoring now, for a moment, the transactions of the stock-holders, and reverting to the proceedings of the board of directors of the Orientalist Company, we find that upon October 27, 1913, after Fernandez had departed from the Philippine Islands, to be absent for many months, said board adopted a resolution conferring the following among other powers on Vicente Ocampo, the manager of the Oriental theater, namely:

"(1) To rent a box for the films in the 'Kneedler Building.'

"(4) To be in charge of the films and of the renting of the same.

"(5) To advertise in the different newspapers that we are importing films to be exhibited in the Cine Oriental.

"(6) Not to deliver any film for rent without first receiving the rental therefor or the guaranty for the payment thereof.

"(7) To buy a book and cards for indexing the names of the films.

"(10) Upon the motion of Mr. Ocampo, it was decided to give ample powers to the Hon. R. Acuña to enter into agreements with cinematograph proprietors in the provinces for the purpose of renting films from us."

It thus appears that the board of directors, before the financial inability of the corporation to proceed with the project was revealed, had already recognized the contracts as being in existence and had proceeded to take the steps necessary to utilize the films. Particularly suggestive is the direction given at this meeting for the publication of announcements in the newspapers to the effect that the company was engaged in importing films. In the light of all the circumstances of the case, we are of the opinion that the contracts in question were thus inferentially approved by the company's board of directors and that the company is bound unless the subsequent failure of the stockholders to approve said contracts had the effect of abrogating the liability thus created.

Both upon principle and authority it is clear that the action of the stockholders, whatever its character, must be ignored. The functions of the stockholders of a corporation are, it must be remembered, of a limited nature. The theory of a corporation is that the stockholders may have all the profits but shall turn over the complete management of the enterprise to their representatives and agents, called directors. Accordingly there is little for the stockholders to do beyond electing directors, making by-laws, and exercising certain other special powers defined by law. In conformity with this idea it is settled that contracts between a corporation and third persons must be made by the directors and not by the stockholders. The corporation, in such matters, is represented by the former and not by the latter. (Cook on Corporations, sixth ed., sees. 708, 709.) This conclusion is entirely accordant with the provisions of section 28 of our Corporation Law already referred to. It results that where a meeting of the stockholders is called for the purpose of passing on the propriety of making a corporate contract, its resolutions are at most advisory and not in any wise binding on the board.

In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the situation as it presents itself to the third party with whom the contract is made. Naturally he can have little or no information as to what occurs in corporate meetings; and he must necessarily rely Upon the external manifestations of corporate consent. The integrity of commercial transactions can only be maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with law; and we would be sorry to announce a doctrine which would permit the property of a man in the city of Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse against the corporation whose name and authority had been used in the manner disclosed in this case. As already observed, it is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, be estopped from denying his authority; and where it is said "if the corporation permits" this means the same as "if the thing is permitted by the directing power of the corporation."

It being determined that the corporation is bound by the contracts in question, it remains to consider the character of the liability assumed by Ramon J. Fernandez, in affixing his personal signature to said contracts. The question here is whether Fernandez is liable jointly with the Orientalist Company as a principal obligor, or whether his liability is that of a guarantor merely.

As appears upon the face of the contracts, the signature of Fernandez, in his individual capacity, is not in line with the signature of the Orientalist Company, but is set off to the left of the company's signature and somewhat below. Observation teaches that it is customary for persons who sign contracts in some capacity other than that of principal obligor to place their signatures to one side; but we hardly think that this circumstance alone would justify a court in holding that Fernandez here took upon himself the responsibility of a guarantor rather than that of a principal obligor. We do, however, think that the form in which the contract is signed raises a doubt as to what the real intention was; and we feel justified, in looking to the evidence to discover that intention. In this connection it is entirely clear, from the testimony of both Ramirez and Ramon J. Fernandez, that the responsibility of the latter was intended to be that of a guarantor. There is, to be sure, a certain difference between these witnesses as to the nature of this guaranty, inasmuch as Fernandez would have us believe that his name was signed as a guaranty that the contract would be approved by the corporation, while Ramirez says that the name was put on the contract for the purpose of guaranteeing, not the approval of the contract, but its performance. We are convinced that the latter was the real intention of the contracting parties.

We are not unmindful of the force of that rule of law which declares that oral evidence is inadmissible to vary the effect of a written contract. But it must be remembered that ambiguities with respect to the meaning of the language used by the parties may be explained by parol evidence and we see no reason why an ambiguity arising, as in this case, from the form in which the contract was signed may not be explained in the same way. It is certainly the duty of a court to seek the means of giving effect to the intention of the contracting parties rather than to seek pretexts for defeating it.

If the name of a person not interested in the performance of these contracts had appeared written in the place where the name of Ramon J. Fernandez is signed, and the evidence had shown that such name was there written merely to attest the signature of the corporation, or of Ramon J. Fernandez as treasurer, no court would have had any hesitation in holding that no liability had been incurred though words were wanting to show how the name was signed.

We are of the opinion that where a name is signed ambiguously, parol Evidence is admissible to show the character in which the signature was affixed. This conclusion is perhaps supported by the language of the second paragraph of article 1281 of the Civil Code, which declares that if the words of a contract should appear contrary to the evident intention of the parties, the intention shall prevail. But the conclusion reached is, we think, deducible from the general principle that in case of ambiguity parol evidence is admissible to show the intention of the contracting parties.

It should be stated in conclusion that as the issues in this case have been framed, the only question presented to this court is: To what extent are the signatory parties to the contract liable to the plaintiff J. F. Ramirez? No contentious issue is raised directly between the defendants, the Orientalist Company and Ramon J. Fernandez; nor does the present action involve any question as to the undertaking of Fernandez and his three associates to effect the importation of the films upon their own account and risk. Whether they may be bound to hold the company harmless is a matter upon which we express no opinion.

The judgment appealed from is affirmed, with costs equally against the two appellants. So ordered.

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