[CONTROL & MANAGEMENT OF CORPORTIONS—Officers: Liabilities]  First, the SC noted that the CA erred in remanding the case.
ted that the CA erred in remanding the case. The issue regarding the
26 VASQUEZ V. DE BORJA
February 23, 1944 | Ozaeta, J. |
Doctrine: A corporation is an artificial being invested by law with a personality of its own,
separate and distinct from that of its stockholders and from that of its officers who manage and
run its affairs. Its personality is owing to a legal fiction and it necessarily has to act thru its
agents. However, that does not make the latter personally liable on a contract duly entered into,
or for an act lawfully performed, by them for and in its behalf. The fact that the corporation,
acting thru its manager, was guilty of negligence in the fulfillment of the contract, did not make
the manager principally or even 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.
Facts:
 Defendants Antonio Vazquez and Fernando Busuego are the acting manager and treasurer
of Natividad-Vazquez Sabani Development Co., Inc., respectively.
 Defendants allegedly obligated themselves to sell to De Borja 4,000 cavans of palay at
P2.10/cavan, to be delivered on February, 1932. However, despite payment by De Borja of
P8, 400 and repeated demands for delivery, defendants refused to deliver the balance of
1,512 cavans of palay (value: P3,175.20) and return the 1,510 empty sacks which De Borja
delivered to them to supposedly serve as the container for the palay to be delivered to him.
 Hence, Francisco de Borja filed a suit against Vazquez and Busuego to recover the total
sum of P4,702.70.
 In his defense, Vasquez:
o Denied entering into the contract in his own individual and personal capacity.
o According to him, the agreement for the purchase of 4,000 cavans of palay and the
payment of the price of P8,400 were made by him in his capacity as the acting
manager of the corporation.
o By way of counterclaim, he claimed P1,000 as damages on account of the filing of
this action against him despite full knowledge that he had nothing to do with the
transactions in his own individual and personal capacity.
 Trial Court: Vasquez was negligent. While it was indeed the corporation that was
responsible for the transaction (as evidenced by testimonies, the receipt, and the books of
the corporation shown in exhibit 8), the trial court nevertheless ordered Vazquez to pay the
sum of P3,175.20 (value of the 1,512 cavans) plus P377.50.
o The court held that Vazquez was negligent for selling without first checking whether
4k cavans existed in the wineries of the corporation. Busuego was absolved.
 CA: At first, the CA found that Vasquez did not only act negligently but also intervened
with fault. when he entered into a subsequent sale of 1500 cavans (which were delivered)
with one Kwong Ah Phoy without first satisfying the prior sale to De Borja. However,
upon the MR by Vazquez, the CA remanded the case to the court of origin.
 Hence, this present petition for certiorari by Vazquez asking for the to review and reversal
of the CA judgment.
Issues:
 W/N the CA erred in its judgment—YES
 W/N Vazquez is personally liable for the contract he entered into as acting
manager of the corporation.—NO
Held:
1st issue: YES
determination of W/N the corporation had sufficient stock of palay at the time the 1,500
cavans of palay were sold to Kwong Ah Phoy is not material. The statement of the court
that it had not been sufficiently discussed and proven was no justification for ordering a
new trial, which neither party requested.
 Second, the SC ruled that the action, being based on a contract, should have been dismissed
since the party liable thereto (the Natividad-Vazquez Sabani Development Co., Inc.), is not
a party to the action. Both the trial court and the CA manifestly failed to distinguish a
contractual from an extracontractual obligation—the fault and negligence referred to the
former are those incidental to the fulfillment or nonfulfillment of a contractual obligation
whereas the latter is the culpa aquiliana of the civil law, homologous but not identical to
tort of the common law, which gives rise to an obligation independently of any contract.
 The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence
in the fulfillment of the contract, did not make Vazquez principally or even 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.
 It would have been different if, independently of the contract, Vazquez by his fault or
negligence caused damage to De Borja. Then, he would be liable under article 1902 of the
Civil Code. But then, the cause of action should be based on culpa aquiliana and Vazquez’
liability would be principal, not merely subsidiary, as the CA erroneously held.
 Since no such cause of action was alleged, the trial court had no jurisdiction over the issue.
Consequently it was error for the Court of Appeals to remand the case to the trial court to
try and decide such issue.
2nd issue: NO, a corporation necessarily has to act thru its agents, but that does not make
them personally liable on a contract duly entered into, or for an act lawfully performed,
for and in the corporation’s behalf.
 The argument of De Borja (that Vasquez should be personally liable because he was the
one De Borja contracted with) is invalid. Although Vasquez did celebrate the contract,
he did it in his capacity as acting president of the corporation, and only received the
sum of P8,400 from De Borja in behalf of the corporation. The evidence presented is
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 from that of its officers who
manage and run its affairs. That its personality is owing to a legal fiction and thus, it
necessarily has to act thru its agents, does not make the latter personally liable on a
contract duly entered into, or for an act lawfully performed, by them for and in its
behalf.
 The legal fiction by which the personality of a corporation is created is a practical reality
and necessity and may only be disregarded when an attempt is made to use it as a cloak to
hide an unlawful or fraudulent purpose.
 IN THIS CASE, there is no legal and factual basis to hold him liable on the contract, either
principally or subsidiarily. There is no showing of an unlawful or fraudulent purpose. It
has not been alleged nor even intimated that Vazquez personally benefited from the
contract and that he is merely invoking the legal fiction to avoid personal liability. Neither
is it contended that he entered into it in bad faith and with intent to defraud the plaintiff.
 Nevertheless, the SC rejected Vasquez’s counterclaim. Although from a legal point of
view he was not personally liable as 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 represented by him fulfilled the contract by delivering the palay it had sold,
the price of which it had already received. Having such duty as a moral person, he has no
legitimate cause for indignation.
Dispositive: The judgment of the Court of Appeals is reversed, and the complaint is hereby
dismissed, without any finding as to costs.

DISSENTING OPINION: Paras, J

 De Borja is entitled to a judgment against the Vasquez. The latter, as acting president and
manager of Natividad-Vazquez Sabani Development Co., Inc., and with full knowledge of
the then insolvent status of his company (as a matter of fact, said corporation was soon
thereafter dissolved), agreed to sell to the plaintiff 4,000 cavans of palay.
 Notwithstanding the receipt of the full purchase price, Vasquez delivered only 2,488
cavans and refused to deliver the remaining 1,512 cavans and a quantity of empty sacks,
or their value. Such failure resulted from his fault or negligence.
 It is true that the cause of action made out by the complaint is technically based on a
contract and the corporation is not a party to this case. Nevertheless, inasmuch as it was
proven at the trial that the Vasquez was guilty of fault in that he prevented the performance
of the plaintiff’s contract and also of negligence bordering on fraud which caused damage
to the plaintiff, the error of procedure should not be a hindrance, especially when i the SC
may order the necessary amendment of the pleadings, or even consider them
correspondingly amended.
 In the interest of simple justice and to avoid multiplicity of suits the present action must be
considered as one based on fault or negligence. Otherwise, Vasquez would be allowed to
profit by his own wrong under the protective cover of the corporate existence of the
company he represented. It cannot be pretended that any advantage under the sale inured
to the benefit of Natividad-Vazquez Sabani Development Co., Inc., and not of the
defendant personally, since the latter undoubtedly owned a considerable part of its capital.