Ramirez Vs Orientalist Co.

J. F.
RAMIREZ, plaintiff-appellee,
vs.
THE ORIENTALIST CO., and RAMON J. FERNANDEZ, defendants-appellants.
G.R. No. 11897
FACTS:
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.
The directors of the Orientalist Company 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. The defendant Ramon J. Fernandez, one of the directors of the Orientalist Company and also its
treasure, was chiefly active in this matter. Ramon J. Fernandez 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 the exclusive agency of the Eclair films and Milano films. In due time the films began to
arrive in Manila, it appears that the Orientalist Company was without funds to meet these obligations.
Action was instituted by the plaintiff to Orientalist Company, and Ramon J. Fernandez for sum of money.
ISSUE:
WON the Orientalist Co. is liable for the acts of its treasurer, Fernandez?
RULING:
YES.
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.
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 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. 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.

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