G.R. No. 22450. December 03, 1924
YU CHUCK, MACK YUENG, AND DING MOON, PLAINTIFFS AND APPELLEES, VS. “KONG LI PO,” DEFENDANT AND APPELLANT.
OSTRAND, J.:
The defendant is a domestic corporation organized in accordance with the laws
of the Philippine Islands and engaged in the publication of a Chinese newspaper
styled Kong Li Po. Its articles of incorporation and by-laws are in the
usual form and provide for a board of directors and for other officers, among
them a president whose duty it is to “sign all contracts and other instruments
of writing.” No special provision is made for a business or general manager.
Some time during the year 1919 one C. C. Chen or T. C. Chen was appointed
general business manager of the newspaper. During the month of December of that
year he entered into an agreement with the plaintiffs by which the latter bound
themselves to do the necessary printing for the newspaper for the sum of P580
per month as alleged in the complaint. Under this agreement the plaintiffs
worked for the defendant from January 1, 1920, until January 31, 1921, when they
were discharged by the new manager, Tan Tian Hong, who had been appointed in the
meantime, C. C. Chen having left for China. The letter of dismissal stated no
special reasons for the discharge of the plaintiffs.
The plaintiffs thereupon brought the present action alleging, among other
things, in the complaint that their contract of employment was for a term of
three years from the first day of January, 1920; that in the case of their
discharge by the defendant without just cause before the expiration of the term
of the contract, they were to receive full pay for the remaining portion of the
term; that they had been so discharged without just cause and therefore asked
judgment for damages in the sum of P20,880. In its amended answer the defendant
denies generally and specifically the allegations of the complaint and sets up
five special defenses and counterclaims. The first of these is to the effect
that C. C. Chen, the person whose name appears to have been signed to the
contract of employment was not authorized by the defendant to execute such a
contract in its behalf. The second special defense and counterclaim is to the
effect that during the month of January, 1921, the plaintiffs purposely delayed
the issuance of defendant’s newspaper on three separate and distinct occasions
causing damage and injury to the defendant in the amount of P300. Under the
third special defense and counterclaim it is alleged that the plaintiffs failed,
neglected, and refused to prepare extra pages for the January 1, 1921, issue of
the defendant’s newspaper and thus compelled the defendant to secure the
preparation of said extra pages by other persons at a cost of P110. In the
fourth special defense and counterclaim the defendant alleged that the
plaintiffs neglected and failed to correct errors in advertisements appearing in
defendant’s newspaper, although their attention was specifically called to such
errors and they were requested to make the corrections, as a result of which
certain advertisers withdrew their patronage from the paper and refused to pay
for the advertisements, thus causing a loss to the defendant of P160.50. For its
fifth special defense and counterclaim the defendant alleged that the plaintiffs
neglected and refused to do certain job printing, such neglect and refusal
causing injury and damage to the defendant in the sum of P150.
At the trial of the case the plaintiffs presented in evidence Exhibit A which
purports to be a contract between Chen and the plaintiffs and which provides
that in the event the plaintiffs should be discharged without cause before the
expiration of the term of three years from January 1, 1920, they would be given
full pay for the unexpired portion of the term “even if the said paper has to
fall into bankruptcy.” The contract is signed by the plaintiffs and also bears
the signature “C. C. Chen, manager of Kong Li Po.” The authenticity of the
latter signature is questioned by the defendant, but the court below found that
the evidence upon this point preponderated in favor of the plaintiffs and there
appears to be no sufficient reason to disturb this finding.
The trial court further found that the contract had been impliedly ratified
by the defendant and rendered judgment in favor of the plaintiffs for the sum of
P13,340, with interest from the date of the filing of the complaint and the
costs. From this judgment the defendant appeals to this court and makes eighteen
assignments of error. The fourth and seventeenth assignments relate to
defendant’s special defenses and counterclaims; the sum and substance of the
other assignments is that the contract on which the action is based was not
signed by C. C. Chen; that, in any event, C. C. Chen had no power or authority
to bind the defendant corporation by such contract; and that there was no
ratification of the contract by the corporation.
Before entering upon a discussion of the questions raised by the assignments
of error, we may draw attention to a matter which has not been mentioned either
by counsel or by the court below, but which, to prevent misunderstanding, should
be briefly explained: It is averred in the complaint that it is accompanied by a
copy of the contract between the parties (Exhibit A) which copy, by the terms of
the complaint, is made a part thereof. The copy is not set forth in the bill of
exceptions and aside from said averment, there is no indication that the copy
actually accompanied the complaint, but an examination of the record of the case
in the Court of First Instance shows that a translation of the contract was
attached to the complaint and served upon the defendant. As this translation may
be considered a copy and as the defendant failed to deny its authenticity under
oath, it will perhaps be said that under section 103 of the Code of Civil
Procedure the omission to so deny it constitutes an admission of the genuineness
and due execution of the document as well as of the agent’s authority to bind
the defendant. (Merchant vs. International Banking Corporation, 6
Phil., 314.)
In ordinary circumstances that would be true. But this case appears to have
been tried upon the theory that the rule did not apply; at least, it was wholly
overlooked or disregarded by both parties. The plaintiffs at the beginning of
the trial presented a number of witnesses to prove the due execution of the
document as well as the agent’s authority; no objections were made to the
defendant’s evidence in refutation and no exceptions taken; and the matter
is not mentioned in the decision of the trial court.
The object of the rule is “to relieve a party of the trouble and expense of
proving in the first instance an alleged fact, the existence or nonexistence of
which is necessarily within the knowledge of the adverse party, and of the
necessity (to his opponent’s case) of establishing which such adverse party is
notified by his opponent’s pleading.” (Nery Lim-Chingco vs. Terariray,
5 Phil., at p. 124.)
The plaintiff may, of course, waive the rule and that is what he must be
considered to have done in the present case by introducing evidence as to the
execution of the document and failing to object to the defendant’s evidence in
refutation; all this evidence is now competent and the case must be decided
thereupon. Moreover, the question as to the applicability of the rule is not
even suggested in the briefs and is not properly before this court. In these
circumstances it would, indeed, be grossly unfair to the defendant if this court
should take up the question on its own motion and make it decisive of the case,
and such is not the law. Nothing of what has here been said is in conflict with
former decisions of this court; it will be found upon examination that in all
cases where the applicability of the rule has been sustained the party invoking
it has relied on it in the court below and conducted his case accordingly.
The principal question presented by the assignments of error is whether Chen
had the power to bind the corporation by a contract of the character indicated.
It is conceded that he had no express authority to do so, but the evidence is
conclusive that he, at the time the contract was entered into, was in effect the
general business manager of the newspaper Kong Li Po and that he, as such, had
charge of the printing of the paper, and the plaintiffs maintain that he, as
such general business manager, had implied authority to employ them on the terms
stated and that the defendant corporation is bound by his action.
The general rule is that the power to bind a corporation by contract lies
with its board of directors or trustees, but this power may either expressly or
impliedly be delegated to other officers or agents of the corporation, and it is
well settled that except where the authority of employing servants and agents is
expressly vested in the board of directors or trustees, an officer or agent who
has general control and management of the corporation’s business, or a specific
part thereof, may bind the corporation by the employment of such agents and
employees as are usual and necessary in the conduct of such business. But the
contracts of employment must be reasonable. (14a C. J., 431.)
In regard to the length of the term of employment, Corpus Juris says:
“In the absence of express limitations, a manager has authority to hire an
employee for such a period as is customary or proper under the circumstances,
such as for a year, for the season, or for two seasons. But unless he is either
expressly authorized, or held out as having such authority, he cannot make a
contract of employment for a long future period, such as for three years,
although the contract is not rendered invalid by the mere fact that the
employment extends beyond the term of the manager’s own employment. * * *” (14a
C. J., 431.)
From what has been said, there can be no doubt that Chen, as general manager
of the Kong Li Po, had implied authority to bind the defendant
corporation by a reasonable and usual contract of employment with the
plaintiffs, but we do not think that the contract here in question can be so
considered. Not only is the term of employment unusually long, but the
conditions are otherwise so onerous to the defendant that the possibility of the
corporation being thrown into insolvency thereby is expressly contemplated in
the same contract. This fact in itself was, in our opinion, sufficient to put
the plaintiffs upon inquiry as to the extent of the business manager’s
authority; they had not the right to presume that he or any other single officer
or employee of the corporation had implied authority to enter into a contract of
employment which might bring about its ruin.
Neither do we think that the contention that the corporation impliedly
ratified the contract is supported by the evidence. The contention is based
principally on the fact that Te Kim Hua, the president of the corporation for
the year 1920, admitted on the witness stand that he saw the plaintiffs work as
printers in the office of the newspaper. He denied, however, any knowledge of
the existence of the contract and asserted that it was never presented neither
to him nor to the board of directors. Before a contract can be ratified
knowledge of its existence must, of course, be brought home to the parties who
have authority to ratify it or circumstances must be shown from which such
knowledge may be presumed. No such knowledge or circumstances have been shown
here. That the president of the corporation saw the plaintiffs working in its
office is of little significance; there were other printers working there at
that time and as the president had nothing to do with their employment, it was
hardly to be expected that he would inquire into the terms of their contracts.
Moreover, a ratification by him would have been of no avail; in order to
validate a contract, a ratification by the board of directors was necessary. The
fact that the president was required by the by-laws to sign the documents
evidencing contracts of the corporation, does not mean that he had power to make
the contracts.
In his decision his Honor, the learned judge of the court below appears to
have placed some weight on a notice inserted in the January 14th issue of the
Kong Li Po by T. C. Chen and which, in translation, reads as follows: “To Whom
It May Concern: Announcement is hereby given that hereafter all contracts,
agreements and receipts are considered to be null and void unless duly signed by
T. C. Chen, General Manager of this paper.
(Sgd.) “Chen Yu Man
“General Manager of this
paper”
(The evidence shows that Chen Yu Man and T. G. Chen is one and the same
person.)
His Honor evidently overestimated the importance of this notice. It was
published nearly a month after the contract in question is alleged to have been
entered into and can therefore not have been one of the circumstances which led
the plaintiffs to think that Chen had authority to make the contract. It may
further be observed that the notice confers no special powers, but is, in
effect, only an assertion by Chen that he would recognize no contracts,
agreements, and receipts not duly signed by him. It may be presumed that the
contracts, agreements, and receipts were such as were ordinarily made in the
course of the business of managing the newspaper. There is no evidence to show
that the notice was ever brought to the attention of the officers of the
defendant corporation.
The defendant’s counterclaims have not been sufficiently established by the
evidence.
The judgment appealed from is reversed and the defendant corporation is
absolved from the complaint. No costs will be allowed. So
ordered.
Johnson, Avancena, and Romualdez, JJ., concur.
CONCURRING OPINION
STREET, J.:
I concur in the opinion of the court written by Mr. Justice Ostrand and wish
to add an observation of my own on one or two points. In the first place I find
nothing in the opinion of the court inconsistent with the decision in Ramirez
vs. Orientalist Co. and Fernandez (38 Phil., 634). In that case we held
that where a corporation wishes to raise the question as to the authority of an
officer who has signed a contract purporting to bind the corporation, it should
plead the lack of authority by way of special defense. In this case the
defendant raised the point properly in its answer. This is something that was
not done in the Ramirez case. Upon the issue thus presented the parties
submitted their proof, and no notice was taken by any one of the failure of the
defendant to verify its plea on this point by the oath of some proper officer.
If the plaintiffs had raised a question as to the lack of the affidavit in the
court below, as it might have done by objecting to testimony or moving to strike
this special defense out of the answer, the oversight could have been corrected
at once. On the contrary the parties proceeded on the mutual assumption that the
point was properly raised, and the oversight should be ignored in this court. In
the Ramirez case we held that the omission of the defendant to submit such
special defense under oath might be cured by amendment even in this court, and
we might here permit the amendment of the answer, if necessary to the
administration of justice; but this step must be considered wholly superfluous
in view of the course things have taken.
On the principal point in the case, namely, whether one C. C. Chen or T. C.
Chen, who was running the Kong Li Po, had authority to bind the
corporation to the plaintiffs by a contract for the term of three years, I find
that the authorities fully support the proposition quoted in the opinion from
Corpus Juris to the effect that a manager cannot make a contract of employment
for a long period, such as for three years, unless expressly authorized or held
out by the corporation as having such authority. The distinction here, as I see
it, is not so much a distinction between the reasonable and the unreasonable as
it is between the usual and unusual, or the ordinary and extraordinary. There
must be a limit somewhere upon the authority of a manager with respect to the
duration of contracts which he makes for the corporation, and my eye has fallen
upon no decision in which a contract for the period of three years, or longer,
has been upheld on the bare fact that the contract was made by a manager, though
there are cases in which contracts for the period of only one year have been
sustained.
As sustaining the position taken by the court, the following authorities will
be found instructive: Laird vs. Michigan Lubricator Co. (17 L. R. A.,
177 [with note]) ; Caldwell vs. Mutual Reserve Fund Life Association
(53 App. Div. [N. Y.], 245); Carney vs. New York Life Ins. Co. (162 N..
Y., 453; 49 L. R. A., 471 [with note]) ; Vogel vs. St. Louis Museum (8
Mo. App., 587); Manross vs. Uncle Sam Oil Co. (88 Kan., 237; Anno.
Cas., 1914B [with note]). In Gamacho vs. Hamilton Bank-Note &
Engraving Co. (37 N. Y. Supp.f 725), it was said:
“* * * In the absence of
proof of what exact authority belongs to a person descriptively styled a
‘general manager there is no rule by which a court can be guided in determining
what the powers of such an official really are, except such as the evidence in a
particular case may furnish of what the person has done in the general course of
the business of the corporation. That the words ‘general manager’ would import
that the person bearing that title is a general executive officer for all the
ordinary business of the corporation is all that may properly be inferred; and
this would justify, in connection with proof of acts done, a conclusion that all
ordinary contracts made by such an official are authorized by the corporation.
But no presumption of law can be indulged in that, because a person acts as such
a manager, he has the power to bind his principal to contracts of an
extraordinary nature, and of such a character as would involve the corporation
in enormous obligations and for long periods of time. If a general manager,
simply by virtue of his being charged with the ordinary conduct of the business,
would have the right to bind his principal to a contract for services for three
years, involving the obligation to pay thousands of dollars of salary to an
employee, why may not that power extend indefinitely, so that he may make
contracts for all employees for indefinite periods, and thus assume to himself a
power which it cannot be supposed was ever intended to be lodged in him? * * *”
DISSENTING OPINION
MALCOLM, J., with whom concurs VILLAMOR, J.,
It is to be regretted that the prevailing opinion either neglects entirely or
merely makes passing mention of certain points and facts, which demonstrate
completely the tenability of plaintiffs’ action, and the correctness of the
judgment rendered in their favor by Judge of First Instance M. V. del Rosario.
To elucidate—
-
The action was brought by certain printers on the Chinese newspaper Kong Li
Po to recover on a written contract made a part of the complaint. The answer of
the defendant made certain allegations, but failed to deny specifically under
oath the genuineness and due execution of the instrument sued on. The resulting
rule is as set forth in Merchant vs. International Banking Corporation
([1906], 6 Phil., 314),.and many other cases, that failure by the defendant to
deny under oath the execution of the instrument sued on, a copy of which is
attached to the complaint, when such instrument purports to be signed by an
agent of the defendant corporation, is an admission, not only of the genuineness
of the signature, but also of the authority of the agent to sign it for the
defendant and the power of the defendant to enter into such a contract, citing
section 103 of the Code of Civil Procedure, Bausman vs. Credit
Guarantee Co. ([1891], 47 Minn., 377), and Knight vs. Whitmore ([1899],
125 Cal., 198). The case for the plaintiffs is thus premised on a written
instrument which the defendant admits to be genuine, and as to which the
defendant admits the authority of the agent to accomplish and the power of the
defendant to make. -
Not only is the foregoing true, but the defendant corporation held T. C. Chen
out to the public as the business manager of the newspaper Kong Li Po and
clothed him with apparent authority to bind the corporation. The president of
the corporation admitted as much on the witness stand, while public announcement
was made as follows:‘To Whom It May Concern: Announcement is hereby given that hereafter all
contracts, agreements and receipts are considered to be null and void unless
duly signed by T. C. Chen, General Manager of this paper.(Sgd.) “CHEN YU MAN
“General Manager of this
paper’The action of the business manager was thus ratified by his superior officers
and they are now in estoppel to deny such ratification. As held in the case of
Macke vs. Camps ([1907], 7 Phil., 553), one who clothes another with
apparent authority as his agent and holds him out to the public as such, cannot
be permitted to deny the authority of such person to act as his agent in good
faith and in the honest belief that he is what he appears to be. Unless the
contrary appears, the authority of an agent must be presumed to include all the
necessary and usual means of carrying his agency into effect, citing section
333, subsection 1, of the Code of Civil Procedure, and various cases. See
also articles 1259, 1311, and 1313 of the Civil Code.The case of Ramirez vs. Orientalist Co. and Fernandez ([1918], 38
Phil., 634, 641) is markedly similar to the instant one in the two respects here
mentioned. In the opinion in the cited case. Mr. Justice Street, speaking for
the court, said:“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 execu tion of said contracts under oath, as prescribed in section
103 of the Code of Civil Procedure.* * * * * * *
“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 snow 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.”Then after citing Merchant vs. International Banking Corporation,
supra, and other cases approvingly, the writer of the opinion
continued:“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.* * * * * * *
“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.* * * * * * *
“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 court really decides the case in favor of the appellant on a legal point
which was not raised in the lower court, which was not assigned as an error
in this court, and which was not argued in the brief of the appellant. This
point is that the contract of employment made by the business manager of Kong Li
Po with the plaintiffs was unusually long and onerous and was not binding on the
corporation. The legal rule so announced, while having much to commend it,
abstractly, can only be applied in the Philippines to the instant case,
concretely. Our understanding of the meager demand for technical employees on
newspapers in the Philippines, and particularly for technical employees on
Chinese newspapers, is that a contract extending over a period of three years
and calling for the payment of a salary of P480 per month for three persons,
which contract was entered into in a written instrument by the business manager
of the paper, presumably under genuine power but at any rate under apparent
power, and which contract was ratified by the officers of the corporation, is
not invalid. To continue the quotation from volume 14a Corpus Juris, pages 431,
432, where it stops in the prevailing opinion: The contract is not rendered
invalid “where there is no abuse of the manager’s authority and no fraud
practiced, and where the contract is definite in terms, duly accepted, and the
work entered upon.” (McGuire vs. Old Sweet Springs Co. [1913], 73 W.
Va., 321.) Volume 2, Thompson on Corporations, sections 1576 to 1583 can be read
with profit.
For three fundamental reasons, therefore, it is my firm opinion that the
contract sued on should be held valid and enforcible and that as was done in the
lower court, the plaintiff should obtain redress pursuant to this contract.
My vote is for straight affirmance.