OBLIGATIONS AND CONTRACTS WEEK 1 | Case 14 of 45 1171
Modes of Breach – FRAUD Art. 1170-
SUPERFACTS! Borja sued Vazquez, manager of a corporation, for failing to deliver palay to Borja as stated in their contract. Vazquez argued that he did not enter into the contract in his individual capacity. SC ruled that it was the corporation who was a party to the contract; thus, Borja’s complaint should have been dismissed. A corporation is an artificial being invested by law with a personality of its own, separate and distinct from that of its stockholders and officers. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act through its agents, does not make the latter personally liable on a contract duly entered into by them on behalf of the corporation. FACTS: Francisco de Borja (Borja) filed an action against Antonio Vazquez and Fernando Busuego (defendants) to recover from them P4702, alleging: -
defendants jointly and severally obligated themselves to sell Borja 4,000 cavans of palay to be delivered on February 1932; defendants received payment of P8,400; defendants delivered through February, March and April only 2,488 cavans and refused to deliver the balance of 1,512 Thus, Borja suffered damages amounting to P1000 Borja delivered to defendants 4000 empty sacks, of which they returned only 2490 and refused to deliver the balance of 1,510 worth P377 Vazquez denied entering into the contract in his own individual and personal capacity, alleging that the agreement was made by Borja with Natividad-Vasquez Sabani Devlopment Co. (corporation), of which Vazquez was the acting manager at the time of the transaction. -
Counterclaim: suffered damages on account of the filing of the action because Borja had full knowledge that he (Vazquez) had nothing to do with the transactions in his own individual and personal capacity. Trial court ruled in favor Borja, absolving Busuego (treasurer of the corporation). CA originally affirmed (with modification/reduction as to amount of damages), saying that the sale in favor of Borja was in his capacity as acting president and manager of the corporation, but afterwards remanded the case for further proceedings, to determine whether the corporation had sufficient stock of palay at the time. Vazquez then filed petition for certiorari. ISSUE: Did Borja enter into a contract with Vazquez in his personal capacity? NO RULING: CA decision REVERSED. Complaint DISMISSED. HELD: The action being on a contract, and it appearing that the party liable on the contract is the corporation, which is not a party herein, the complaint should have been dismissed. Borja’s contentions were based on the fact that he had contracted with the corporation through Vazquez, and that Vazquez had received the payment from Borja. But such argument is invalid and insufficient to show that the president of the corporation is personally liable on the contract duly and lawfully entered into by him in its behalf. A corporation is an artificial being invested by law with a personality of its own, separate and distinct from that of its stockholders and officers. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act through its agents, does not make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them in behalf of the corporation. Without this legal fiction, no corporate entities may exist and no corporate business may be transacted. Such legal fiction may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been alleged or proven in this case. It has not been alleged nor even intimated that Vazquez personally benefited by the contract of sale in question and that he is merely invoking the legal fiction to avoid personal liability. We find no legal and factual basis upon which to hold him liable on the contract either principally or subsidiarily.
Vazquez v Borja 74 Phil 560 (1944)
OBLIGATIONS AND CONTRACTS WEEK 1 | Case 14 of 45 1171
Modes of Breach – FRAUD Art. 1170-
The trial court found Vazquez guilty of negligence in the performance of the contract and held him personally liable on that account. [“On the other hand, the Court of Appeals found that ***Spanish sentences I can’t translate***”, so don’t mention nalang the CA hehe.] The lower courts failed to distinguish these two: CONTRACTUAL OBLIGATION: obligation arising from contract. The fault and negligence referred to here are those incidental to the fulfillment or nonfullfillment of a contractual obligation; EXTRACONTRACTUAL OBLIGATION: obligation arising from culpa aquiliana. The fault or negligence referred to here are those that give rise to an obligation independently of any contract. The fact that the corporation, acting through Vazquez as its manager, was guilty of negligence in the fulfillment of the contract, did not make Vazquez principally or subsidiarily liable for such negligence. Since it was the corporation's contract, its nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent liable. On the other hand if independently of the contract Vazquez by his fault or negligence caused damage to Borja, he would be liable to the latter under extracontractual obligatoins. But then Borja’s cause of action should be based on culpa aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would be principal and not merely subsidiary. No such cause of action was alleged in the complaint. Hence the trial court had no jurisdiction over the issue and could not adjudicate upon it. Consequently it was error for the Court of Appeals to remand the case to the trial court to try and decide such issue. With regard to Vazquez’s counterclaim: the Court found that just because Vazquez was sued in his personal capacity, does not warrant his contention that the suit against him is malicious and tortious; thus, there is no sufficient basis upon which to sustain his counterclaim. Although he was not personally liable for the fulfillment of the contract entered into by him on behalf of the corporation of which he was the acting president and manager, it was his moral duty towards the party with whom he contracted in said capacity to see to it that the corporation fulfilled the contract by delivering the palay it had sold, the price of which it had already received. Paras, J., dissenting: Borja is entitled to a judgment against Vazquez. Vazquez, as acting president and manager, entered into the contract with full knowledge of the then insolvent status of his company (the company in fact was dissolved thereafter). Notwithstanding the receipt from Borja of the full purchase price, Vazquez still did not deliver all the cavans, and even refused to deliver the empty sacks or their value. Such failure resulted from his fault or negligence. Even though Borja’s cause of action is based on a contract between Borja and the corporation (which is not a party to the case), it was still proven that Vazquez was guilty of fraud and negligence in that he prevented the performance of the contract and caused damage to Borja. The error of procedure should not be a hindrance to the rendition of a decision in accordance with evidence introduced by the parties, especially when in such a situation we may order the necessary amendment of the pleadings.
Vazquez v Borja 74 Phil 560 (1944)
