Ramirez

Ramirez vs.
Orientalist (38 Phil 634)
EN BANC
G.R. No. 11897 September 24, 1918
J. F. RAMIREZ, plaintiff-appellee,
vs. THE ORIENTALIST CO., and RAMON J. FERNANDEZ, defendants-appellants.
STREET, J.:
DOCTRINE:
It is declared under Sec. 28 (now 23) 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.
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 a board can create
liability, like an individual, by other means than by a formal expression of its will.
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. 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.
FACTS: The Board of Directors were apprised of the fact the plaintiff JF Ramirez, who
is based in Paris and represented by his son Jose Ramirez, had control of agencies for
two different marks of films, “Éclair Films” and “Milano Films”.
Negotiations began between Jose Ramirez and the board of directors of Orientalist Co.
where Ramon Fernandez, one of the members of the board and TOC’s treasurer was
chiefly active.
Near the end of July 1913, Jose Ramirez offered to supply from Paris the aforesaid
films to TOC through Fernandez. Accordingly, Fernandez had an informal conference
with the BOD except one, and with approval of those whom he had communicated,
accepted the offer through letters signed by Fernandez in his capacity as treasurer.
Upon arrival of the said films, it turned out that TOC was without funds, so the first
drafts, taken in the name of TOC were received and paid by its president, Hernandez,
through his own funds and such films were treated by him as his own property; and in
fact, they never came into the possession of TOC and were rented by Hernandez to
TOC as they are exhibited in the Oriental Theater.
Other films arrived together with their drafts, taken in the name of TOC through its
president, which were not paid and gave rise to the present action. TOC was declared
the principal debtor and Ramon Fernandez, the guarantor.
ISSUE: Whether the corporation could be held liable for the contract.
HELD: YES. 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.
In dealing with corporations, the public at large is bound to rely to a large extent upon
outward appearances. If a man is 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
ever have been granted.
The failure of the defendant corporation to make an issue in its answer with regard to
the authority of Ramon Fernandez to bind it, and particularly 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.
It is declared under Sec. 28 (now 23) 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 true in the by-laws, that the president shall have the power and it
shall be his duty, to sigh 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 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 a board can create liability, like
an individual, by other means than by a formal expression of its will.
Participation of the stockholders. The letter accepting the offer was dispatched in a
meeting of the board called by Ramon Fernandez, where 4 members, including the
president was present. 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. From the meeting of the
stockholders, it can be inferred that this body was then cognizant that the offer had
already been accepted. It is not, however, necessary to find the judgment of the
stockholder proceedings, even if the assumption is that they did not approve of the
contract.
Both upon the principle and authority it is clear that the action of the stockholders,
whatever its character, must be ignored. 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. 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.

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Ramirez vs.

Orientalist (38 Phil 634)

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